Despite Weak First-Quarter GDP Gain, Top-Line Sales Growth Remains Decent.
One of the most basic and important measures of activity for an economy or a business is sales. Since 1992, the growth of final sales for the U.S. as a whole, excluding imputed rent (the amount of money owners would have spent if they were renting) has averaged 4.5 percent annually. By comparison, over the past four years, final sales have expanded by an average of 3.7 percent annually, somewhat below the longer-run average but still a decent pace. Both of these average growth rates include a 0.9 percent decline in final sales in the first quarter of 2015.
Among the major contributors to the growth in final sales, consumer spending excluding imputed rent has averaged 4.8 percent growth since 1992 but only 4 percent growth since 2010. With consumer spending accounting for the lion’s share of final sales, the modest growth over both the longer and shorter terms has offset faster growth in other sectors. For example, business investment has averaged 5.5 percent growth since 1992 while housing investment has averaged 5 percent. Both of these sectors beat the 4.8 percent growth in consumer spending. Furthermore, since 2010, business investment has averaged 7.1 percent growth while housing investment has grown 8.5 percent. In both cases, average growth has exceeded that of the consumer sector.
For another perspective, top-line sales growth at corporations in the Standard & Poor’s 500 Index has averaged 4.6 percent a year since 1992, close to the 4.5 percent rate for final sales in the economy. More recently, revenue among the S&P 500 companies has averaged 4 percent, below the longer-term average but a bit better than the broader economy (Chart 2).
Many companies in the S&P 500 may have experienced weak sales, similar to the weak final sales numbers for the economy, Through May 1, approximately 360 companies included in the index had reported results for the period. Combining the actual results with the latest consensus estimates for companies that have not reported yet suggests total sales may have fallen 2.6 percent from a year ago. However, excluding energy companies, which have been heavily affected by the plunge in oil prices, sales probably rose 2.3 percent from a year ago.
Despite the weak first-quarter performance, we expect sales growth to return to longer-term average levels over the coming quarters and years.
Business-Cycle Indicators
The proportion of AIER’s Business-Cycle Conditions leading indicators deemed to be expanding remained at the neutral 50 percent level in the latest month, matching the readings of the prior two months. Each month, AIER calculates the percentage of its Twelve Leading Indicators that are judged to be cyclically expanding.
Click for interactive Indicators at a Glance (on mobile device turn to landscape)
As of our April evaluation, 50 percent of our leading indicators were judged to be on an upward trend, the third month in a row at that neutral level. Consistent readings above the midpoint suggest a low probability of recession over the next six to 12 months. Conversely, a drop below 50 percent indicates an increased chance that a recession is coming. However, before we can conclude that a downturn is probable, we look for confirmation from our cyclical score of leaders. For April, that score came in at 79, unchanged from March and still well above neutral. Note that there have been instances in the past where the percentage of leading indicators judged to be expanding fell to 50 or below without confirmation from the cyclical score and no recession occurred. So, while the evidence of weakness should not be ignored, the preponderance of evidence suggests the tepid first quarter performance may be temporary.
The percentage of coincident indicators judged to be expanding posted a reading of 100 in April, the 40th month in a row with a perfect 100 reading. Among our six coincident indicators, four hit new cycle highs.
The proportion of lagging indicators judged to be expanding in April also came in at 100 percent, unchanged from March and registering a perfect reading for the 32nd time in the past 35 months. Among the lagging indicators, four of the six reached new cycle highs while the remaining two had an indeterminate or sideways trend. Overall, the percentage expanding and the cyclical score for our leading indicators suggest a mixed economy but not one headed for recession (Chart 3).