Why Revenues Are Weakening

Despite signs of a generally humming economy, there is one weakness we're seeing: corporate revenue growth. Among the companies in the S&P 500, revenue growth dropped from 3.6 percent in the third quarter of 2014 to 3.1 percent in the fourth quarter. S&P Capital IQ forecasts that revenue growth falling to negative 0.6 percent in the first quarter of this year, and negative 0.9 percent in the second quarter.

Why are profits dropping? There are two basic factors behind this:

• This is the downside of the slide in energy prices that has made so many of us happy at the gas pump. Revenue for energy companies have been dropping as well. The energy sector has seen its earnings drop by 22 percent in the past year.
• The stronger dollar has driven down profits that companies derive from overseas. Nearly half the total revenue for the S&P 500 comes from outside the United States.