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GOLDMAN: Corporate America's revenue recession is over

mountain top
Things are looking up. (Flickr / Paxson Woelber)

Goldman Sachs thinks corporate America’s nearly two-year-long string of year-over-year revenue declines is near an end.

“[We argue] that the recent ‘revenue recession’ in the US corporate sector is likely over,” write Goldman strategists Charles Himmelberg and James Weldon.

“2016 has already seen a substantial bounce in the %YoY growth of real quarterly revenue. And our assessment of the underlying macro drivers…predicted growth rate from a simple regression model, suggests that this rebound is likely to continue.”

The pair include the following chart, with the diamonds reflecting actual revenue and the blue line showing revenues predicted from their model.

Screen Shot 2016-10-19 at 7.44.27 AM
Screen Shot 2016-10-19 at 7.44.27 AM

Himmelberg and Weldon argue that as the impact felt by US companies from the crash in oil prices and the rise in the value of the US dollar dissipates — in addition to continued strong employment growth and stabilizing industrial production data — revenue growth will soon return to the corporate sector.

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“The most important macro driver of this ‘revenue recession’ was oil,” Himmelberg and Weldon write.

“The collapse of oil prices alone accounts for roughly half of the model­-predicted 6.7% YoY drop in quarterly revenues as of Q4 last year (the realized drop was 9.1%). The weaker Dollar contributed an additional 1.2% to the drop, and weaker industrial production added another ­1.1%. This year, by contrast, the negative contribution from all three factors has diminished significantly, while employment growth has remained stable.”

The pair note, however, that while a continued deepening of year-over-year revenue declines for US corporate is over, the third quarter should still see revenues down 2.3% over last year.

And while Goldman’s call doesn’t indicate a US corporate sector or broader economy that’s about to take off, this adds to the growing theme that things are improving in the US economy.

Myles Udland is a writer at Yahoo Finance.

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