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January 13, 2022

Macro view: US companies report strong profits despite growing threats

Some economists believe that big US companies will report strong growth for nine out of 11 sectors in the past quarter, despite inflation and Omicron threats.

Claudia Sahm

Claudia Sahm, economist and former director of macroeconomic policy at the Washington Center for Equitable Growth, and a section chief at the Board of Governors of the Federal Reserve System, shared an article on big US companies expected to report strong profits for the past quarter, despite high inflation, wage pressure, supply chain disruptions, and the Omicron variant.

According to Wall Street estimates, companies in the S&P 500 stock index are forecast deliver year-on-year earnings growth of nearly 22% for the fourth quarter of 2021, after an increase of 40% from the previous quarter. While energy, materials, and industrials will lead the way in earnings growth, utilities and financials are expected to have shrunk in the last quarter of 2021. Experts believe that the change in the fourth quarter profits compared to the previous quarter is a result of the extraordinary collapse and then surge in earnings due to the Covid-19 pandemic.

The strong recovery in US companies’ profits from pandemic-driven lows has also helped keep common measures of valuation in check, even while stock prices having surged. Analysts explain that disappointing corporate results could make stocks look even more expensive, dimming the attraction for investors.

Steve Keen

Steve Keen, economist and associate professor of economics and finance at the University of Western Sydney, retweeted an article shared by Richard Denniss, chief economist and former executive director of The Australia Institute, on the Australian prime minister Scott Morrison caught in a Covid dilemma of his own making as the election drew closer. Denniss believe that his refusal to make rapid antigen tests (RATs) free had nothing to do with the budget or the economy, but that he did not plan ahead.  

Economists state that if he does not provide support soon the economy will spiral, but if he did, he must admit the cost of living with the virus. Denniss explains that criticising Morrison for putting the budget ahead of people is to flatter him unfairly. Since the Covid-19 outbreak, the Morrison government has spent huge amounts of public money subsidising the gas industry than it will ever spend on RATs.

Denniss argues that despite cuts in taxes and regulations, the reality is that economies cannot function without a healthy workforce, customers, and supply chains. Therefore, no matter how upbeat Morrison may be, the Delta and Omicron variants continue to spread across regions and outdoor settings, making several Australians sick and reconsider stepping out to spend.

Stephen Gordon

Stephen Gordon, economics professor at the Laval University in Quebec, retweeted an article shared by Steven Hamilton, assistant professor of economics at The George Washington University in Washington, D.C., on economists being qualified to comment on and shape the pandemic policy. Hamilton tweets that had they been consulted more, many problems might have been avoided.

Hamilton further added that no field should have a monopoly over policy and that economists should weigh in on Covid. He also believes that once people are able to grasp what economics is really about, its role in pandemic policy resolves. For example, many economists understand ‘option value’, which is why they advocated for wasteful spending on multiple vaccines. Additionally, their understanding of game theory and political economy helps in anticipating how politicians respond to political incentives.

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