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Investing Specialists

Corporate Earnings and GDP Growth Part Ways

The U.S. continues to have some unique factors that will help the domestic economy, if not its multinational corporations.

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I have been warning for many months that corporate earnings would slow because of large overseas exposures even as the U.S. economy picked up at least a little bit of steam. This week, inflation-adjusted GDP growth in the third quarter came in above general expectations at 2.0%, while corporate earnings seemed to be destined to fall about 3% for the same period.

The earnings reports so far have not been pretty, and the degree of ugliness seems to depend on how much exposure a company has to Europe and, to a lesser degree, China. Although I have mentioned a few times that S&P revenues from non-U.S. countries probably average 20%-25%, even I was shocked by how dependent some companies had become on overseas revenues.  3M Co. (MMM) and  DuPont (DD), two of this week's bigger earnings disappointments, derive 66% and 61%, respectively, of their revenues outside the U.S.

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.