Apparently, there are two Americas.
In one, corporate profits are soaring, the economy is booming and jobs are available for the asking.
In the other, corporate profits are dismal, America is in or close to a recession and more than 100 million Americans have left the labor force.
In one America, more people approve than disapprove of the job President Obama is doing (49.2% approve, 46.8% disapprove, according to Real Clear Politics). In the other America, more than two thirds of the country believe the country is on the wrong track. Real Clear Politics found that 69.3% of Americans believe the country is on the wrong track, while only 22.5% believe it is on the right track. 
While media are increasingly reporting that the economy is at or near full employment, that America is at odds with reality. As we’ve written, participation in the labor force has dropped to 62.6%, which is near a four-decade low.
The America where the economy is booming is even more delusional. Some may say that it’s all relative. They may concede that U.S. growth in gross domestic product (GDP) is sluggish at best, but typically add that it’s better than GDP growth in the rest of the world.
The U.S. Bureau of Economic Analysis has revised first quarter growth up from 0.8% to 1.1%, but that’s just a third of the pre-Obama, pre-financial crisis average. Even the cheery folks at the International Monetary Fund have cut their forecast of 2016 U.S. economic growth from 2.4% to 2.2%, citing the weak energy sector, strong dollar and overseas turmoil. Like the Federal Reserve Board, President Obama and many others, the IMF seems to agree that the embarrassingly low growth rate is always someone else’s fault.
If we’re comparing ourselves with the rest of the world, we may as well include the second largest economy. Many are concerned that China’s economy is expected to grow by only 6.5% this year. Yes, economies in developing countries are expected to grow faster, as the baseline for growth is lower, but if 6.5% growth is slow in the world’s second largest economy, what do you call 2.2% growth in the world’s largest economy?
Profits Plummeting … We Think
So what about corporate profits? That’s where things really get interesting … as well as confusing.
At the beginning of last week, with 90 of the country’s largest companies preparing to report profits, The Wall Street Journal reported that the second quarter was expected to be the fourth straight quarter of declining profits.
“Based on analysts’ forecasts for companies in the S&P 500 index, Thomson Reuters predicted that adjusted earnings per share for the second quarter were down 4.7% from a year earlier,” The Journal reported. “That follows a 5% drop in the first quarter and would be the fourth straight period of declines.”
Meanwhile, revenues were expected to drop 0.8%, according to Thomson Reuters, marking the sixth consecutive declining quarter, while more than 80 S&P 500 companies issued earnings warnings. Three financial giants— J.P. Morgan & Co., Wells Fargo & Co. and Citigroup Inc.—each posted lower quarterly profits.
As the week progressed, though, headlines like this one started to emerge: “Wall St: US shares rise again on solid corporate profits.” Microsoft’s stock jumped more than 5% as a $3.2 billion loss at this time a year ago gave way to a $3.1 billion gain. American Express, meanwhile, reported a 37% increase in profits, compared with the same time last year.
By the end of the week, with 123 companies in the S&P 500 having reported, FactSet noted that earnings were on track to drop 4.2% in the second quarter from the prior year.
As of June 30, analysts had expected corporate profits to fall 5.3% in the second quarter. Since it appears that profits are only dropping by 4.2%, the stock market inched higher. But the market would have likely rose even higher if European Central Bank President Mario Draghi hadn’t stopped short of pledging additional stimulus last week.
So consider this madness. Profits plunge yet again and stock prices go up, but they would have gone up even more if the ECB had promised additional stimulus, which should be a sign that the economy is performing poorly.
In the America I live in, this doesn’t make any sense.