Stock Market Briefing:
NIPA vs. S&P 500
Profits
Yardeni Research, Inc.
June 16, 2017
Dr. Edward Yardeni
516-972-7683
[email protected]
Debbie Johnson
480-664-1333
[email protected]
Please visit our sites at
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thinking outside the box
Table Of Contents
Table Of Contents
Profits
Profits (NIPA)
Profits (NIPA vs. S&P)
Retained Earnings & Dividends
Cash Flow
Profit Margin
June 16, 2017 / Stock Market Briefing: NIPA vs. S&P 500 Profits
1-2
3-8
9
10
11
12-13
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Profits
Figure 1.
6375
5675
4975
4275
3575
NOMINAL GNP & AFTER-TAX CORPORATE PROFITS
Q1
(1960=100, ratio scale)
6375
5675
4975
4275
3575
2875
2875
2175
2175
1475
1475
775
775
7% Growth Path*
Nominal GNP
After-Tax Corporate Profits
Reported to IRS
From Current Production**
yardeni.com
75
75
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
* Compounded monthly to yield 7% annually.
** Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits
tax accounting for inventory withdrawals and depreciation to the current cost measures used in GDP.
Source: Bureau of Economic Analysis.
Figure 2.
183
153
123
S&P 500 EARNINGS PER SHARE
(dollars, ratio scale)
May
Q1
7%
93
63
33
183
153
123
93
S&P 500 Earnings Per Share*
63
Reported
(4-quarter sum)
Operating**
(4-quarter sum)
Forward***
33
5%
yardeni.com
3
3
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
* Growth paths are compounded monthly to yield 5% and 7% annually.
** Excludes write-offs.
*** S&P 500 12-month forward consensus expected operating earnings per share. Time-weighted average of consensus earnings estimates for
current and next year.
Source: Standard & Poor’s and Thomson Reuters I/B/E/S.
Page 1 / June 16, 2017 / Stock Market Briefing: NIPA vs. S&P 500 Profits
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Profits
Figure 3.
6375
5675
4975
4275
3575
NOMINAL GDP & AFTER-TAX CORPORATE PROFITS
Q1
(1960=100, ratio scale)
6375
5675
4975
4275
3575
2875
2875
2175
2175
1475
1475
775
775
7% Growth Path*
After-Tax Corporate Profits
Reported to IRS
From Current Production**
yardeni.com
75
75
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
* Compounded monthly to yield 7% annually.
** Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits
tax accounting for inventory withdrawals and depreciation to the current cost measures used in GDP.
Source: Bureau of Economic Analysis.
Figure 4.
220
190
160
130
100
S&P 500 FORWARD EARNINGS*
& 7% Growth Trend
(ratio scale)
220
190
160
6/8
S&P 500 Forward Earnings (138.4)
130
100
7% Trend**
70
70
40
40
yardeni.com
10
10
79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
* 52-week forward consensus expected S&P 500 operating earnings per share. Monthly through April 1994, then weekly.
** Compounded monthly to yield 7% annually.
Note: Shaded areas denote recessions according to the National Bureau of Economic Research.
Source: Thomson Reuters I/B/E/S.
Page 2 / June 16, 2017 / Stock Market Briefing: NIPA vs. S&P 500 Profits
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Profits (NIPA)
Figure 5.
2810
2410
2010
1610
CORPORATE PROFITS FROM CURRENT PRODUCTION*
(billion dollars, saar, ratio scale)
Q1
2810
2410
2010
1610
1210
1210
810
810
Total Profits
410
410
Pre-Tax
After-Tax
yardeni.com
10
10
48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22
* Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits
tax accounting for inventory withdrawals and depreciation to the current cost measures used in GDP.
Source: Bureau of Economic Analysis.
Figure 6.
3010
2510
2010
CORPORATE PROFITS REPORTED TO IRS*
(billion dollars, saar, ratio scale)
Q1
1510
1010
510
3010
2510
2010
1510
1010
Total Profits
Pre-Tax
510
After-Tax
yardeni.com
10
10
48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22
* Excluding Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits
tax accounting for inventory withdrawals and depreciation to the current cost measures used in GDP.
Source: US Department of Commerce, Bureau of Economic Analysis.
Page 3 / June 16, 2017 / Stock Market Briefing: NIPA vs. S&P 500 Profits
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Profits (NIPA)
Figure 7.
100
100
CORPORATE PROFITS FROM CURRENT PRODUCTION*
(yearly percent change)
Total Profits
After-Tax (4.3)
50
50
Q1
0
yardeni.com
-50
0
-50
48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22
* Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits
tax accounting for inventory withdrawals and depreciation to the current cost measures used in GDP.
Source: US Department of Commerce, Bureau of Economic Analysis.
Figure 8.
150
150
CORPORATE PROFITS REPORTED TO IRS*
(yearly percent change)
100
100
Total Profits
After-Tax (12.0)
50
50
Q1
0
0
yardeni.com
-50
-50
48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22
* Excluding Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits
tax accounting for inventory withdrawals and depreciation to the current cost measures used in GDP.
Source: US Department of Commerce, Bureau of Economic Analysis.
Page 4 / June 16, 2017 / Stock Market Briefing: NIPA vs. S&P 500 Profits
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Profits (NIPA)
Figure 9.
1400
1400
CORPORATE PROFITS BY INDUSTRY*
(billion dollars, saar)
1200
Q1
1200
Pre-Tax By Industry
1000
1000
Nonfinancial
Financial
800
800
Net Receipts from the Rest of the World
600
600
400
400
200
200
0
0
yardeni.com
-200
-200
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22
* Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits
tax accounting for inventory withdrawals and depreciation to the current cost measures used in GDP.
Source: US Department of Commerce, Bureau of Economic Analysis.
Figure 10.
100
100
CORPORATE PROFITS BY INDUSTRY*
(as a percent of corporate profits)
80
80
60
60
Pre-Tax By Industry
40
Q1
Nonfinancial
40
Financial
Net Receipts from the Rest of the World
20
20
0
0
yardeni.com
-20
-20
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22
* Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits
tax accounting for inventory withdrawals and depreciation to the current cost measures used in GDP.
Source: US Department of Commerce, Bureau of Economic Analysis.
Page 5 / June 16, 2017 / Stock Market Briefing: NIPA vs. S&P 500 Profits
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Profits (NIPA)
Figure 11.
550
500
550
MEASURES OF PROFITS IN FINANCIAL SECTOR
(billion dollars)
450
500
Q1
450
Pre-Tax Profits: Financial*
(saar)
400
400
S&P 500 Financials
12-month Forward Earnings
350
300
350
300
FDIC Commercial Banks: Net Income
(annualized, nsa)
250
250
6/8
200
200
Q1
150
150
100
100
50
50
0
0
-50
-50
-100
-150
-100
yardeni.com
-150
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
* Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits
tax accounting for inventory withdrawals and depreciation to the current cost measures used in GDP.
Source: Bureau of Economic Analysis and Federal Deposit Insurance Corporation, Quarterly Banking Profile.
Figure 12.
40
40
FINANCIAL PROFITS SHARE OF TOTAL PROFITS
35
35
30
30
25
25
Q1
20
20
15
10
15
Financial Profits as a Percent of
Pre-Tax Corporate Profits
10
S&P 500 Forward Earnings*
5
5
0
0
-5
-5
-10
-10
yardeni.com
-15
-15
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
* Using consensus 12-month forward earnings forecasts.
Source: US Department of Commerce, Bureau of Economic Analysis and Thomson Reuters I/B/E/S.
Page 6 / June 16, 2017 / Stock Market Briefing: NIPA vs. S&P 500 Profits
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Profits (NIPA)
Figure 13.
750
700
750
CORPORATE PRE-TAX PROFITS FROM THE REST OF THE WORLD*
Q1
(billion dollars, saar)
700
650
650
600
600
Rest of World Profits
550
550
Net
500
500
450
Receipts
450
400
Payments
400
350
350
300
300
250
250
200
200
150
150
100
100
50
50
0
-50
0
yardeni.com
95
96
97
-50
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
* Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits
tax accounting for inventory withdrawals and depreciation to the current cost measures used in GDP.
Source: US Department of Commerce, Bureau of Economic Analysis.
Figure 14.
60
55
60
CORPORATE PRE-TAX PROFITS FROM THE REST OF THE WORLD
(as a percent of pre-tax corporate profits*)
55
50
50
45
45
Rest of World Profits
Net (21.8)
Payments (11.4)
Receipts (33.2)
40
35
40
35
30
30
25
25
Q1
20
20
15
15
10
10
5
5
0
-5
0
yardeni.com
-5
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
* Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits
tax accounting for inventory withdrawals and depreciation to the current cost measures used in GDP.
Source: US Department of Commerce, Bureau of Economic Analysis.
Page 7 / June 16, 2017 / Stock Market Briefing: NIPA vs. S&P 500 Profits
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Profits (NIPA)
Figure 15.
50
40
15
CORPORATE PRE-TAX PROFITS RECEIPTS FROM REST OF WORLD vs.
GLOBAL INDUSTRIAL PRODUCTION
10
(yearly percent change)
30
5
20
Mar
10
Q1
0
0
-5
-10
Receipts*
-10
-20
OECD Industrial Production
-15
-30
-40
-20
95
50
40
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
50
CORPORATE PRE-TAX PROFITS RECEIPTS FROM REST OF
WORLD vs. US MERCHANDISE EXPORTS
40
(yearly percent change)
30
30
20
20
10
10
Q1
Apr
0
0
-10
-10
Receipts*
-20
-20
Exports
-30
-30
-40
-40
95
80
70
60
50
40
30
20
10
0
-10
-20
-30
-40
-50
-60
-70
-80
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
30
CORPORATE PRE-TAX PROFITS RECEIPTS FROM REST OF
WORLD vs. TRADE WEIGHTED DOLLAR
(yearly percent change)
20
ROW Profits Receipts*
10
May
0
-10
-20
Trade Weighted Dollar
yardeni.com
95
96
97
-30
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
* Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits
tax accounting for inventory withdrawals and depreciation to the current cost measures used in GDP.
Source: Bureau of Economic Analysis and Board of Governors of the Federal Reserve System, Census Bureau and OECD.
Page 8 / June 16, 2017 / Stock Market Briefing: NIPA vs. S&P 500 Profits
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Profits (NIPA vs. S&P)
Figure 16.
2000
1800
2000
AFTER-TAX CORPORATE PROFITS: NIPA vs. S&P 500*
(billion dollars, quarterly)
1600
1800
Q1
1600
NIPA After-Tax Profits
1400
1400
(saar)
1200
Based on Tax Returns*
1200
1000
From Current Production**
1000
Q1
800
800
600
600
400
400
200
200
0
0
-200
S&P 500
Net Income
-200
-400
(actual x 4, nsa)
-400
Operating (S&P data)
-600
-600
Reported on GAAP basis (S&P data)
-800
-800
yardeni.com
-1000
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
16
18
-1000
20
* Excluding IVA & CCadj.
** Including IVA & CCadj. These two adjustments restate the historical cost basis used in profits tax accounting for inventory withdrawals and
depreciation to the current cost measures used in GDP.
Source: Bureau of Economic Analysis and Standard & Poor’s.
Figure 17.
35
30
35
S&P 500 OPERATING & REPORTED EARNINGS PER SHARE (S&P data)
(dollars, quarterly)
30
Q1
25
25
20
20
15
15
10
10
5
5
0
0
Operating (S&P data) (28.8)
-5
-5
Reported (S&P data) (27.5)
-10
-10
-15
-15
-20
-20
yardeni.com
-25
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
-25
20
Source: Standard & Poor’s.
Page 9 / June 16, 2017 / Stock Market Briefing: NIPA vs. S&P 500 Profits
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Retained Earnings & Dividends
Figure 18.
910
810
710
610
510
UNDISTRIBUTED CORPORATE PROFITS WITH IVA & CCAdj
(billion dollars, saar, ratio scale)
Q1
910
810
710
610
510
410
410
310
310
210
210
110
110
yardeni.com
10
10
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
Source: Bureau of Economic Analysis.
Figure 19.
1210
1060
910
760
610
DIVIDENDS IN CORPORATE PROFITS
(billion dollars, saar, ratio scale)
Q1
1210
1060
910
760
610
460
460
310
310
160
160
yardeni.com
10
10
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
Source: Bureau of Economic Analysis.
Page 10 / June 16, 2017 / Stock Market Briefing: NIPA vs. S&P 500 Profits
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Cash Flow
Figure 20.
2820
2420
2020
1620
CORPORATE CASH FLOW
2820
2420
2020
1620
Q1
(ratio scale, billion dollars, saar)
1220
1220
820
820
420
420
Corporate
Cash Flow* (2177.8)
Economic Depreciation** (1598.0)
Tax-Reported Depreciation*** (1495.6)
20
yardeni.com
20
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
* After-tax retained earnings plus tax-reported depreciation.
** Corporate capital consumption allowances.
*** Corporate capital consumption allowances with capital consumption adjustment.
Source: US Department of Commerce, Bureau of Economic Analysis.
Figure 21.
200
150
200
INVENTORY VALUATION ADJUSTMENT*
150
(billion dollars, saar)
100
100
50
50
0
0
-50
-50
Q1
-100
-100
-150
-150
-200
250
-200
250
150
CAPITAL CONSUMPTION ADJUSTMENT*
Tax-Reported > Economic
Depreciation
(billion dollars, saar)
150
50
50
-50
Tax-Reported < Economic
Depreciation
-150
-250
-50
Q1
-150
-250
-350
-450
-350
yardeni.com
70
72
74
-450
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
16
18
20
* These two adjustments restate the historical cost basis used in profits tax accounting for inventory withdrawals and depreciation to the current cost
measures used in GDP.
Source: Bureau of Economic Analysis.
Page 11 / June 16, 2017 / Stock Market Briefing: NIPA vs. S&P 500 Profits
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Profit Margin
Figure 22.
16
16
PRE-TAX CORPORATE PROFITS FROM CURRENT PRODUCTION*
14
14
As a Percent of National Income
As a Percent of Nominal GDP
Q1
12
12
10
10
8
8
6
6
48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
* Includes IVA & CCAdj. These two adjustments restate the historical-cost basis used in profits tax accounting for inventory withdrawals and
depreciation to the current-cost measures used in GDP.
Note: Shaded areas are recessions according to the National Bureau of Economic Research.
Source: US Department of Commerce, Bureau of Economic Analysis.
Figure 23.
12
12
CORPORATE PROFITS MARGINS IN GDP
(after-tax profits as a percent of nominal GDP)
10
10
Q1
8
8
6
6
4
4
Based on Tax Returns* (9.1)
Based on Current Production** (8.3)
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2
2
47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21
Note: Shaded areas denote recessions according to the National Bureau of Economic Research.
* Excluding IVA & CCadj.
** Including IVA & CCadj. These two adjustments restate the historical cost basis used in profits tax accounting for inventory withdrawals and depreciation
to the current cost measures used in GDP.
Source: Bureau of Economic Analysis.
Page 12 / June 16, 2017 / Stock Market Briefing: NIPA vs. S&P 500 Profits
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Profit Margin
Figure 24.
19
19
18
18
PROFIT MARGIN* FROM CURRENT PRODUCTION
(percent)
17
17
16
16
15
Q1
14
All Corporations
13
Nonfinancial Corporations
15
14
13
12
12
11
11
10
10
Q1
9
9
8
8
7
7
6
6
5
5
4
4
3
3
yardeni.com
2
2
48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22
* After-tax profits including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj) divided by Gross Value Added
of Corporate Business.
Note: Shaded areas are recessions according to the National Bureau of Economic Research, which determined that a peak in business activity occurred
in the U.S. economy in March 2001.
Source: US Department of Commerce, Bureau of Economic Analysis.
Figure 25.
16
100
AFTER-TAX PROFIT MARGIN
& CAPACITY UTILIZATION
After-Tax Nonfinancial Corporate
Profit Margin
14
95
Capacity Utilization: All Industries
12
90
10
85
Q1
8
80
May
6
75
4
70
yardeni.com
2
65
48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22
Source: Federal Reserve Board and US Department of Commerce, Bureau of Economic Analysis.
Page 13 / June 16, 2017 / Stock Market Briefing: NIPA vs. S&P 500 Profits
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