U.S. Companies Post Profit Growth Not Seen in Six Years

from the WSJ

America’s largest companies are on pace to post two consecutive quarters of double-digit profit growth for the first time since 2011, helped by years of cost-cutting, a weaker dollar and stronger consumer spending.

Earnings at S&P 500 companies are expected to rise 11% in the second quarter, according to data from Thomson Reuters, following a 15% increase in the first quarter. Close to 60% of the firms in the index have reported second-quarter results so far.

Corporate America’s strong earnings performance comes as several policy initiatives that were expected to help boost companies’ bottom line—corporate-tax cuts and increased government spending on infrastructure—have been sidetracked amid political infighting in Washington, D.C., which culminated with the recent failure of the health-law bill.Even as activity inside the Beltway bogged down, the markets have been on an almost nonstop rally since the election. The S&P 500 is up 16% since early November and 10% this year.

“You could argue that the stock-market investor overestimated Trump but underestimated earnings,” said Christopher Probyn, chief economist for State Street Global Advisors.

The second-quarter profit gains are spread across industries from Wall Street banks to Detroit’s car factories to Silicon Valley’s software labs. Earnings are expected to decline only in the utilities sector, according to data from Thomson Reuters. ​

Several factors are at work, analysts and economists say. A weaker dollar has made it easier to sell U.S.-made goods overseas and has kept borrowing costs low. U.S. wages have improved enough to help bolster consumer spending without raising employer labor costs so much to dent the bottom line.

Companies also continue to reap the fruits of their recent zeal for cutting costs, Mr. Probyn said. “We underestimated some of the cost-cutting and restructuring that has gone on within the various industries; that has permitted earnings to keep doing well.”

Sales, too, rose in the quarter, by an expected 5%, the second-biggest increase in more than five years, according to data from Thomson Reuters. The figures reflect actual results for about half the S&P 500 index, and analysts’ estimates for those that had yet to report results as of Friday.

On Friday, the Commerce Department reported that gross domestic product rose at a 2.6% rate in the second quarter, up from 1.2% in the first quarter.

Executives say even rapid progress on a tax rewrite or an infrastructure bill is unlikely to help improve profits soon.

“We’re halfway through the year, and they haven’t done [tax overhaul],” Christopher Nassetta, CEO of Hilton Worldwide Holdings Inc. said last week. “We’re not going to have enough time for it to trickle through and really benefit this year.”

On an investor call earlier this month, James Dimon, chief executive officer of J.P. Morgan Chase & Co. said: “We’ve been growing at 1.5% to 2% in spite of stupidity and political gridlock because the American business sector is powerful and strong and is going to grow regardless.” Mr. Dimon has made several comments about the need for bipartisan policy revamps.

The White House didn’t respond to a request for comment.

“Political and policy uncertainty continues to weigh on health care, taxation, regulation and trade,” Debra Cafaro, chief executive of Ventas Inc., a real-estate investment firm specializing in senior housing and health-care property, said Friday. “Washington has been wildly unpredictable.”

As executives discuss results with investors and analysts, events in Washington have faded into the background. S&P 500 companies that mentioned President Donald Trump or his administration during their latest conference calls are down by a third compared with three months ago, according to an analysis by research firm Sentieo.

The market has also largely stopped reacting to blow-by-blow developments in Washington, despite uncertainty over the size, shape and timing of any tax and infrastructure initiatives, said Quincy Krosby, chief market strategist with Prudential Financial Inc.

Last week, congressional Republicans and the Trump administration outlined some plans for tax changes to cut individual and corporate tax rates “as much as possible” with a timeline to advance legislation this fall. Many specifics aren’t yet known. President Trump has also promised to put $1 trillion toward infrastructure, likely from a mix of private and public funding, although details remain unclear.

Corning Inc. CEO Wendell Weeks, who was at the White House this month to announce new U.S. investment and hiring, told analysts last week that he still expects Congress to overhaul the tax code—eventually.

“What I am much less confident about is how the political math works in any given year,” Mr. Weeks said. “So I think calling timing on that one is above my pay grade.”

Honeywell International Inc. CEO Darius Adamczyk earlier this month said he hoped lawmakers would advance plans for revamping the tax code as soon as the current quarter. Still, he isn’t counting on it.

“I think there’s more uncertainty in that now than maybe even before, so I can’t let that sort of rule the business,” Mr. Adamczyk said.

That uncertainty could make it difficult for companies to sustain robust earnings growth, said Omar Aguilar, chief investment officer of equities for Charles Schwab Investment Management.

Companies are reporting solid cash flow, but capital spending has been weak until recently. Uncertainty over tax policy may exacerbate that reluctance to invest, Mr. Aguilar said. “Tax reform is clearly what the future may require for these numbers to continue on the same pace.”

Evan Greenberg, CEO of insurer Chubb Ltd. , told investors last week that the U.S. badly needs a tax-code overhaul and higher government infrastructure spending to remain competitive.

“But an awful lot of this requires legislation, and we need an administration that is focused, that is working with Congress,” he said in a conference call. “And we need a Congress that comes together to address these issues of our country.”

Medicaid Expenditures Since Passage of the ACA

Source

Chuck Schumer: A Better Deal for American Workers

from the NY Times

Americans are clamoring for bold changes to our politics and our economy. They feel, rightfully, that both systems are rigged against them, and they made that clear in last year’s election. American families deserve a better deal so that this country works for everyone again, not just the elites and special interests. Today, Democrats will start presenting that better deal to the American people.

There used to be a basic bargain in this country that if you worked hard and played by the rules, you could own a home, afford a car, put your kids through college and take a modest vacation every year while putting enough away for a comfortable retirement. In the second half of the 20th century, millions of Americans achieved this solid middle-class lifestyle. I should know — I grew up in that America.

But things have changed.

Today’s working Americans and the young are justified in having greater doubts about the future than any generation since the Depression. Americans believe they’re getting a raw deal from both the economic and political systems in our country. And they are right. The wealthiest special interests can spend an unlimited, undisclosed amount of money to influence elections and protect their special deals in Washington. As a result, our system favors short-term gains for shareholders instead of long-term benefits for workers.

And for far too long, government has gone along, tilting the economic playing field in favor of the wealthy and powerful while putting new burdens on the backs of hard-working Americans.

Democrats have too often hesitated from taking on those misguided policies directly and unflinchingly — so much so that many Americans don’t know what we stand for. Not after today. Democrats will show the country that we’re the party on the side of working people — and that we stand for three simple things.

First, we’re going to increase people’s pay. Second, we’re going to reduce their everyday expenses. And third, we’re going to provide workers with the tools they need for the 21st-century economy.

Over the next several months, Democrats will lay out a series of policies that, if enacted, will make these three things a reality. We’ve already proposed creating jobs with a $1 trillion infrastructure plan; increasing workers’ incomes by lifting the minimum wage to $15; and lowering household costs by providing paid family and sick leave.

On Monday we are announcing three new policies to advance our goals.

Right now, there is nothing to stop vulture capitalists from egregiously raising the price of lifesaving drugs without justification. We’re going to fight for rules to stop prescription drug price gouging and demand that drug companies justify price increases to the public. And we’re going to push for empowering Medicare to negotiate lower drug prices for older Americans.

Right now our antitrust laws are designed to allow huge corporations to merge, padding the pockets of investors but sending costs skyrocketing for everything from cable bills and airline tickets to food and health care. We are going to fight to allow regulators to break up big companies if they’re hurting consumers and to make it harder for companies to merge if it reduces competition.

Right now millions of unemployed or underemployed people, particularly those without a college degree, could be brought back into the labor force or retrained to secure full-time, higher-paying work. We propose giving employers, particularly small businesses, a large tax credit to train workers for unfilled jobs. This will have particular resonance in smaller cities and rural areas, which have experienced an exodus of young people who aren’t trained for the jobs in those areas.

In the coming months, we’ll offer additional ideas, from rebuilding rural America to fundamentally changing our trade laws to benefit workers, not multinational corporations.

We are in the minority in both houses of Congress; we cannot promise anyone that this Congress will begin passing our priorities tomorrow. But we have to start raising our voices to present our vision for the country’s future. We will seek the support of any Republicans willing to work with us, but more important, we must start rallying the American people to support our ideas.

In the last two elections, Democrats, including in the Senate, failed to articulate a strong, bold economic program for the middle class and those working hard to get there. We also failed to communicate our values to show that we were on the side of working people, not the special interests. We will not repeat the same mistake. This is the start of a new vision for the party, one strongly supported by House and Senate Democrats.

Our better deal is not about expanding the government, or moving our party in one direction or another along the political spectrum. Nor is it about tearing down government agencies that work, that effectively protect consumers and promote the health and well-being of the country. It’s about reorienting government to work on behalf of people and families.

Americans from every corner of this country know that the economy isn’t working for them the way that it should, and they wonder if it ever will again. One party says the answer is that special interests should continue to write the rules and that government ought to make things easier for an already-favored few.

Democrats will offer a better deal.

This new deal is better than nothing. Barely!