Large public companies saw their earnings fall 4.5 percent in the fourth quarter of 2022, according to an analysis from Morningstar, upending years of consistent growth.
Corporate profits skyrocketed over the last two years — reaching an all-time high of nearly $2.1 trillion in the third quarter of 2022 — as corporations capitalized on cash-flush consumers and limited supply of goods to jack up prices.
A January study from economists at the Kansas City Federal Reserve found that corporate price hikes drove roughly half of U.S. inflation in 2021. Fed officials have eyed corporate markups in recent months as inflation remained hotter than expected.
Now, profits are slowing as consumers start to pull back on their spending.
On recent conference calls with investors, top consumer-facing companies such as Kraft Heinz, PepsiCo and Procter & Gamble credited price hikes for driving profits but noted that their sales are taking a hit.
Retailers said this month that more shoppers are switching to cheaper store brand items and discount grocery stores to save money.
Some consumers are simply spending less. The Conference Board’s consumer confidence index slid for the second straight month, prompting economists to ponder whether strong January retail sales figures were just a blip, not a trend.
“That means the chance of the much-discussed no landing scenario, where inflation is not contained and the economy continues to grow, is getting slimmer,” Tuan Nguyen, U.S. economist at RSM, wrote in a Tuesday analysis.
