US recession: Slumping profits leads to downturn in business investment – HSBC

FXStreet (Delhi) – Research Team at HSBC, suggests that a protracted slump in profitability can make companies more uncertain about the future and often leads to a downturn in business investment spending.

Key Quotes

“Once the contraction in investment is severe enough, a recession is usually the result. Continued strength in the US dollar is one factor that might pressure corporate profits, reducing export demand and boosting import competition. Sluggish global growth would exacerbate the drag from net exports.”

“A drop in the stock market as profits disappoint would impact business and consumer sentiment and further restrain spending. Even if interest rates were to hold steady or decline, businesses would still refrain from making new investments due to a lack of confidence in final demand.”

“A full-fledged recession would involve firms making cutbacks in their workforces in addition to reductions in capital expenditures. Accelerating layoffs would lead to a drop in personal incomes and additional weakness in household spending. Corporate profits as measured in the national accounts have slumped in the past year, and real growth in business fixed investment has been sluggish. A US recession is a possible risk in 2016 if growth in profits does not improve.”

Research Team at HSBC, suggests that a protracted slump in profitability can make companies more uncertain about the future and often leads to a downturn in business investment spending.

(Market News Provided by FXstreet)