US workers and consumers (who are, for the most part, the same people) seem to be doing pretty well at the moment. But businesses, not so much.
As Bloomberg's Mr Rich Miller and Ms Victoria Stilwell reported last week: Consumer spending grew last year by the most since 2005, in spite of a slight slackening in the fourth quarter. Non-residential business investment, meanwhile, rose at its slowest pace since 2010 as oil and gas companies sharply curtailed spending.
Mr Miller and Ms Stilwell suggested that this was a temporary juxtaposition; eventually, consumers would pull businesses up or businesses would drag consumers down. Most economists, they wrote, predict it will be the former and the US economy won't fall into a recession. Either way, the assumption is that businesses and consumers will eventually get back in sync. That's how things have worked in the past.
We've been hearing a lot over the past decade-plus, though, about the diverging fortunes of US-based corporations and US-based people. The corporations have, for the most part, been thriving in an age of globalisation. The people, not so much. Corporate profits in the US have almost tripled since 2000, adjusted for inflation; real median household income has been down 7 per cent since then.
Could it be, then, that the fortunes of corporations and the average American have become so disconnected that things could now go in the other direction, with corporations struggling in the face of a global slump and consumers laughing all the way to the store for years to come?
Short answer: I don't think so, at least not for that long. This will be interesting to watch, though.
One major reason why corporations have thrived while people haven't is that big corporations, in particular, were able to take advantage of growth overseas, even as the US economy stagnated. Estimates of the share of revenue that the companies in the Standard & Poor's 500 Index get from abroad range from 33 per cent to 48 per cent. That share has been pretty flat since the recession, but is up from a decade ago. The Bureau of Economic Analysis' much broader measure of foreign earnings, meanwhile, shows a huge rise since the mid-20th century.
Some of the biggest names in US business are particularly dependent on overseas markets. Apple, for example, got 59.8 per cent of its revenue and 62.8 per cent of its operating income from outside the Americas in its 2015 fiscal year. In the most recent fiscal year for which numbers are available, Exxon Mobil got 67.3 per cent of revenue from outside the US; Alphabet, 57.3 per cent; Microsoft, 54.1 per cent, and Facebook and General Electric, 52.5 per cent.
Overall, corporate earnings have become less dependent on the health of the US economy. The big question is whether this also means that the US economy has become less dependent on them.
In the past, a decline in corporate profits has usually been bad news for the US economy: What usually happens is that, with profits under pressure, corporations start slashing jobs and cutting back on investment. Consumers eventually respond by cutting back spending as well, and the economy falls into recession. Since 2011, corporate profits' share of national income has been declining.
But with so much of that profit now coming from outside the US, it's at least possible that corporations will slash jobs and cut back on investment somewhere else.
BLOOMBERG VIEW
