Real gross domestic product (GDP) growth was estimated at a nearly stagnant 0.2 percent annual rate in the first three months of this year. As we wrote in April’s Business Conditions Monthly (https://www.aier.org/bcm), we expect consumers to lead a rebound in economic activity over the next couple of quarters based on continued strength in areas such as jobs and income growth, record high net worth, and consumer sentiment.
This month we turn our analytical eye to the nation’s corporate sector. Overall, we believe American companies are quite healthy and are likely to respond positively to rebounding consumer spending, despite the drag from a strong dollar and slow global expansion. From top-line sales growth to profit margins, profits (Chart 1), cash flow, and healthy balance sheets, the corporate sector is in generally good shape by historical standards. Companies are likely to be a positive force supporting a reacceleration in the virtuous cycle of rising consumer spending leading to better earnings, which support business investment, jobs, and wage growth. These, in turn, support future increases in consumer spending.