COVID | Economics & Growth | Equities | Fiscal Policy
This BBG headline “Corporate Guidance Is Now More Bitter Than Sweet: Taking Stock” caught my attention. The article notes that Q4 corporate profit guidance have started to lag analysts. That is consistent with my expectations of a forthcoming string of negative profit surprises, let me explain why.
We have gone through unprecedented expansion and now contraction of the fiscal impulse. This chart from the Brookings institution, shows a measure of the fiscal impulse: the FIM (fiscal impact measure). It is based on a methodology developed by the Fed that measures the impact of tax and spending measures in the budget on private consumption and investment, as well as the direct impact of government spending on goods and services. As you can see the fiscal response to the pandemic has consisted of extreme expansions and contractions. Right now, we are in the contraction phase, a deeper contraction than even after the GFC. Basically, the budget deficit is contracting from 13% of GDP in FY2021 to 5% in FY2022, never seen before.
This BBG headline “Corporate Guidance Is Now More Bitter Than Sweet: Taking Stock” caught my attention. The article notes that Q4 corporate profit guidance have started to lag analysts. That is consistent with my expectations of a forthcoming string of negative profit surprises, let me explain why.
We have gone through unprecedented expansion and now contraction of the fiscal impulse. This chart from the Brookings institution, shows a measure of the fiscal impulse: the FIM (fiscal impact measure). It is based on a methodology developed by the Fed that measures the impact of tax and spending measures in the budget on private consumption and investment, as well as the direct impact of government spending on goods and services. As you can see the fiscal response to the pandemic has consisted of extreme expansions and contractions. Right now, we are in the contraction phase, a deeper contraction than even after the GFC. Basically, the budget deficit is contracting from 13% of GDP in FY2021 to 5% in FY2022, never seen before.
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