Inventory shortages caused by burgeoning COVID brand precursor
Even more striking is the impact on corporate profits. The same quarters where low inventories weakened growth were followed by a 22.4% quarterly jump in profits, on an annualized average, compared to growth of just 2.4% in other quarters.
“Historically, when you are in this low inventory situation, in the near future you will see growth in stocks, better earnings and better stock performance,” Mr. Paulsen said.
The results reflect the effects of companies rushing to catch up with demand, increasing production by hiring more workers in a bid to replenish the surplus of goods reduced by the unexpected and rapid rebound of the pandemic.
“The biggest economic characteristic of COVID-19 was that it created the greatest cycle from recession to boom ever,” Mr. Paulsen said. “Most countries in the world saw the biggest collapse in GDP, jobs, stocks, and within a year we were in a wartime boom. “
Companies are now struggling to reverse the effects of their actions last year, when staff were downsized and operations halted in anticipation of a prolonged downturn.
“Businesses have cut production, jobs and inventories at a record pace. Much of what we’ve seen since then are issues associated with the cut, ”he said. “You can’t get the workers back, you can’t restock the shelves fast enough. “
The results provide a sense of calm for investors who fear that the rise in inflation, which peaked in 13 years in June, may prove to be longer than the transitional period anticipated by the Federal Reserve and other banks plants around the world.
They also point to the possibility that record highs in the US stock market could worsen in the near term. The&The blue chip benchmark P 500 closed at an all-time high on Tuesday amid a bumper second-quarter earnings season.
Earnings per share for S&P 500 companies reached US $ 140 last year and are expected to earn US $ 200 this calendar year, according to consensus estimates by financial analysts, marking a new high.
However, some fear that the current cargo bottleneck, with gummed up supply chains and container ships held up in port, could lead companies to order more than they need to, resulting in oversupply that could dampen growth.
Such a scenario has come to be described as an “inventory recession” and is another fear looming over the pandemic recovery.
In the second quarter, the US economy grew 6.5%, according to preliminary figures from the Bureau of Economic Analysis released last week, after rising 6.3 percent in the first three months of the year.
“What we are going through is the roller coaster explosion, which was massive and fast,” said Paulsen. “Companies will need to grow their operations faster than demand for the foreseeable future in order to catch up. “