Issue link: http://palletcentral.uberflip.com/i/1161332
32 PalletCentral • July-August 2019 palletcentral.com U.S. corporate profits with capital consumption adjustments passed through a business cycle high in September 2018, as measured by the three-month moving average (3MMA). The lack of rise in the 3MMA and the 3/12's (3.1%) downward passing of the 12/12 (7.0%) suggest that, at best, corporate profitability ascent will be constrained through the near term. Couple that with the recent drop in U.S. corporate cash holdings to below the year-earlier level, and you have a recipe for slowing growth in spending. The cash holdings 3MMA peaked in March 2018; it stayed above year-earlier levels until the end of 2018. This does not necessarily mean we will see another leg to a stock market correction (the correlation is not that tight), but it is a pretty good signal that U.S. nondefense capital goods new orders (excluding aircraft) will continue to move lower on the back side of this business cycle. An unexpected and interesting data series popped up recently: China industrial profits. Profits in the U.S. and in China tend to experience the major moves in approximate synch. However, unlike in 2007 when China prospered while our profits fell, the reverse is happening. China's profits fell below year-earlier levels beginning in November 2017 while U.S. profits were ascending. China is clearly experiencing some pain right now because of the ongoing negativity in profits. While we don't expect the U.S. profit decline to be as severe, the history suggests that it could occur. Retaliation and profit margin squeeze(s) have yet to run their way through the U.S. economy. Our leading indicator system suggests that the normal business cycle will swing back toward the upside as we go through the first half of 2020. Profits would normally follow suit. Expect some relatively lean weeks/months between now and then unless your business lags the general economy. (Blogs were published with permission from the authors. Follow Gene Marks @genemarks and Brian Beaulieu, ITR Economics @ITROutlook on Twitter.) PC ECONOMY Our leading indicator system suggests that the normal business cycle will swing back toward the upside as we go through the first half of 2020.