In June, Deutsche Bank unveiled an analysis which showed that the US corporate debt-to-GDP ratio suggests a serious imbalance in this business cycle. It meant that there was a risk of a recession in the nearest future.
Recently, Deutsche Bank has published an update that reveals that the US may now be in a recession.
Generally, profits per worker increase in the long run. The pace of increases is influenced by productivity and inflation. However, this trend has changed in recent years. Now a drop in profits in the corporate sector is not dependent on the profits of oil and coal companies. Energy companies are the exception. So, in the first quarter 2016 profit fell by 5.2% in annual terms. Thus, profits declined by 5.2% on a yearly basis in the first quarter of 2016.
Profit margins were primarily weighed by weak domestic demand, lack of growth in business productivity, the stronger dollar and reduced energy costs.
Domestic profits have declined by almost $200 billion in the period of Q4 2014 to Q2 2016. Meanwhile, profits outside the US declined by a negligible $10 billion over the same period.
Analysts say this was due to a decrease in domestic demand. Real final sales slowed to 2.3% year-over-year in the last quarter from 3.9% in Q1 2015.
Even if the US economy is not yet in a recession, it is apparently on the verge of it. As soon as the Fed raises rates in September or December, soaring debt and a decline in corporate profits will eventually trigger a recession.
