US Business Sales Recession

US market weakness has been attributed to a complex array of factors. A simpler and more direct explanation may be found in US business sales data. The appearance of an expanding economy at odds with the equity market conceals a recession in business sales. The chart shows sales growth among the S&P 500 companies (in the blue line) and business sales on an economy-wide basis as reported by the Department of Commerce (in the red line). Over the year to the end of December 2015, sales on these two measures declined by 2.4% and 2.8%, respectively. Without some form of exogenous shock, business sales are unlikely to expand dramatically. A 3-5% expansion track seems around the potential in the foreseeable macroeconomic environment. If S&P 500 sales are running at a similar pace, the coming year may simply record a sales recovery. Earnings would correspondingly fall short of their peak levels for up to another three years based on existing operating margins. Equity prices would be prone to languish in these circumstances whatever the surrounding global financial and economic conditions.