THE idea that profits grow is embedded in the corporate world. Bosses’ pay rises if they boost earnings per share. Managers who admit their firms may shrink are viewed as cowards and taken outside and shot. Lenders assume that firms’ cashflows will grow, allowing them to repay debts. In a daft ritual, Wall Street analysts start most years by collectively forecasting that earnings per share will rise at double-digit rates. Actual growth has been lower but has still had a dazzling run, averaging 8% over the past 30 years for the S&P 500 index of big American firms. Even after the 2007-08 crisis floored the global economy, profits recovered smartly.
Perhaps that is why reality has yet to sink in: the business world is stagnating. For the second quarter in a row the sales and profits of members of the S&P 500 are expected to fall; for the three months to September they are forecast to be 3-5% lower than in the same period last year. Earnings recessions are rare, happening only about once in each decade.
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