To assume profits for big American firms will keep on growing is complacent—and possibly dangerous
past 25 years America’s stockmarket has soared. Far from being built on thin air, this long bull run has rested on a boom in corporate profits. The worldwide earnings of all American firms, whether listed or not, have risen by 455% over this period and are now 35% above their long-term average relative toGlobalisation, tepid wage rises, the ascent of tech and feeble competition made the bonanza possible. But as some of these forces ebb, the era of relentlessly expanding profits is under threat.
Globalisation helped make firms more efficient but now pulls down profits. The share of pre-tax earnings made abroad has slipped from 35% a decade ago to 25%. Company conference calls with investors now feature discussions about trade wars. At home the jobs market is tightening, putting more pressure on wage bills, which rose by about 5% last year.
During recessions corporate earnings typically fall by a sixth or more. But even if the economy keeps on growing—at 121 months old the expansion is now the longest on record—downward pressure on profit margins is on the cards. That would allow consumers and workers to get a better deal from big business, but presents two risks for investors and executives.
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