Global corporate profits to fall 8% in Q3

Global corporate profits in the third quarter are likely to fall for the first time in 18 months after record earnings in April-June, Reuters calculations showed, as the spreading COVID-19 Delta variant squeezes supply chains and raises labour costs.

Massive fiscal stimulus to support economic recovery and loosened pandemic curbs generated high consumer demand in the second quarter, and companies contending with disrupted supplies and falling inventories raised prices to offset James Solloway, chief market strategist at SEI, said a further fall in interest rates could squeeze US banks’ profitability rising input costs.

This helped boost the combined net profits of 2,542 global companies with market capitalisation of at least $1 billion to a record $734 billion in the quarter ended June, according to a Reuters analysis of Refinitiv data.

But profits are estimated to fall 8 per cent  on average to $678.2 billion in the July-September quarter.

China’s factory output and retail sales growth contracted sharply in July, as new Covid-19 outbreaks and floods disrupted business operations, while US business activity growth slowed for a third straight month in August.

Also, a months-long shortage of semiconductor chips that forced automakers to slash production and smartphone makers to save chips for popular models is turning into a fresh crisis as Covid-19 cases surge in Asian countries that are key to global supply chains.

“Supply chain issues, labour issues, and input price increases are all likely to dampen growth in the third quarter,” said Brian Jacobson, senior investment strategist at Wells Fargo Asset Management.

“Avoiding lost sales due to supply chain issues is a more acute problem today than it has been historically. Shipping costs are high. Fading support from stimulus checks may change the composition of consumer spending.”

Toyota Motor Corp said last week it would slash global production for September by 40 per cent from a previous plan. Apple Inc predicted last month that growth would slow in the September quarter.

Profits at US firms are estimated to decline 7.2 per cent in the third quarter, data showed, after rising 12.4 per cent in the second quarter.

A strong dollar could hurt US exporters and a further fall in interest rates could squeeze profits at banks, said James Solloway, chief market strategist at wealth manager SEI.

Earnings at European and Asian firms are set to fall 10.3 per cent and 9.6 per cent, respectively.