2 Charts that Worry Us: Corporate Profit Margins and CEO Confidence

LNWM | Investment Management | October 22, 2019

It’s earnings season, meaning that corporate profits reported for Q3 2019 are making daily headlines. In our Q4 2019 Economic Outlook, released last week, LNWM CIO Gino Perrina and his team point to a lower-profile but important gauge: the level of corporate profit margins. While the length of US economic cycles varies, US corporate profit margins have followed a clear arc through the course of previous expansions. The current level of profit margins, shown in the chart below in blue, indicates the US economy is approaching the end of the current expansion, which is now into its 11th year, the longest on record.

US Corporate Profit Margings are Falling

Another data point that is concerning is the level of CEO confidence. During the past several decades, declining CEO confidence has been a predictor of recessions, as business curtail expansion plans, reduce hiring and shore up balance sheets. As see in the chart below, CEO confidence (as measured by the Conference Board survey) has fallen to a level typically seen just before or during previous US recessions (gary areas in the chart)

US CEO Confidence Levels

What does this all mean for the US and global economy? To find out, sign up for LNWM’s Navigator, released last week. Each quarter, Navigator brings you our Economic Outlook plus a variety of insights into what you must know to make the most of your wealth.