Corporate profits posted their first back-to-back decline since 2002. In the non-financial sector, back-to-back declines had not been seen since 2007. Over the last two quarters, oil & gas extraction accounted for half of the $16B decline in operating profits of non-financial corporations, while manufacturing accounted for about a quarter. In Q1, the drop in manufacturing profits cannot be blamed on the loonie, since the latter depreciated against the greenback. Lower demand is the culprit.

Looking ahead, firming oil and other commodity prices are faring well for oil & gas, metal mining and primary metals, while stock market gains are a positive development for financials’ profits. But manufacturing sales as a whole will probably be impaired by loonie’s appreciation. Prospects are therefore mixed for corporate profits in Q2. An improvement is expected in the second half of the year, when manufacturing volume sales should benefit from a recovery of the U.S. economy. If there is no improvement, share pricers will likely retreat somewhat from current levels.

Mounir R. El-Ayari, CIM, FCSI, C.h. P. Strategic Wealth
Investment Advisor
Associate Portfolio Manager
e-mail: mounir.el-ayari@nbf.ca