Profits Now, Deflation Later

Corporate profit reports continue to surprise on the upside, which probably says as much about the analysts as it does about the companies.  We don’t doubt that the earnings are real.  The bigger questions are where the profits come from, who is receiving them, and whether they are sustainable.  With second quarter GDP coming in weaker than estimated and national output the past three years all revised downward, the picture is not nearly as rosy as some forecasters suggest. Take a look at a few economic headlines from the last few days: Personal Income and Spending Were Flat, Pending Home Sales Dropped, Chain-Store Sales Fell, Consumer Confidence Cooled, and Factory Orders Shrank.  Monthly unemployment numbers come out on Friday.  ADP estimates that private employers added 42,000 jobs in July, which…