Revenue Growth, Recession & Recovery

Using my Compustat data sources, I decided to investigate actual revenue and profit growth in the past seven years.

I totaled revenues for members of the S&P500 from 2003 to now, resulting in slightly more than an actual 500 companies.

As of December, 2003, their reported total annual revenues (the sum of four consecutive quarters) were $23.7T. By the end of 2009, those revenues had risen to $35T.

Calculating annual nominal growth rates in these total revenues, these are the results.

Nominal Total S&P Annual Revenue Growth
2004 10.7%
2005 11.9%
2006 12.3%
2007 9.0%
2008 6.9%
2009 -8.8%

Period Annualized Revenue Growth 2003-09: 6.7%

Isn't this somewhat surprising? Wouldn't you have expected 2008 revenues to have plunged, as the first full year of recession hit? Instead, business revenues grew that year, and only fell, by -9%, last year.

The nearby chart of monthly sampled totals of S&P trailing quarterly revenues does suggest, however, a recent bottoming of revenue loss.

Reinforcing the growth rate analysis, the chart illustrates that revenues peaked in late 2008, then fell, and now have flattened at roughly $8.4 of trailing quarterly revenues for the total S&P500+.

What happened to earnings? I happen to have Net Income After Tax data on the same companies. Here's a table of annual growth in total S&P NIAT for the same period.

Nominal Total S&P Annual NIAT Growth
2004 49.7%
2005 18.6%
2006 17.6%
2007 5.3%
2008 -39.2%
2009 -80.7%

Period Annualized NIAT Growth 2003-09: -20.2%

NIAT fell from $1.3T in 2003 to $333B last year. It appears that earnings behaved more in line with the NBER dating of the recession.

Reinforcing business news of the last two quarters, in which some companies have posted surprising earnings gains, this data illustrates that a broad collection of the US economy's large companies, representing much of the activity of the nation, has experienced a profitability rebound in the last few months. After falling to only tens of millions of dollars for the trailing quarter, NIAT has risen again to a monthly total of trailing quarterly NIAT of $231B for the S&P500+.

It should be noted, however, how much deeper the NIAT decline has been than that of total revenues. The total S&P500+ is a long, long way from its peak running rate of some $800B of total quarterly earnings.