Fake recovery: 2q job cuts boost profits, but sales fall

No recovery yet. Corporate America is making money mostly by cutting people and other costs, not boosting sales.

Second-quarter earnings are out and, as usual, most publicly-traded U.S. firms are reporting they beat the projections that analysts published - which were based on what the companies had been feeding the analysts. They like to look like they're doing better than expected.

But as economist Ed Yardeni tells clients in a note today, parsing the Standard & Poor's 500 industry-by-industry: "All ten sectors have a positive earnings surprise, but just five have a positive sales surprise so far." Emphasis added.

That's better than the first quarter, when 8/10 sectors had "positive earnings surprise", but just 2/10 had "positive sales surprise." But that doesn't mean sales were up for half of companies. It just means they beat their own low self-generated expectations: If you told people you thought sales could drop 10%, and they only fell 5%, that's a "positive surprise." But companies do that consistently. It's still not growth.

As Yardeni notes, "51.8% of the companies have a positive sales surprise, but just 25.6% of the companies have sales up year-over-year." That means, at three-quarter of companies, sales fell, compared to a year ago.

It's probably good that companies are profitable. That keeps share prices from collapsing, which helps pension plans and other investors. Maybe it will lead companies to invest in new products and plants, and hire people. But until that happens large scale, we're not out of this recession.