Expectations for the U.S. economy are worsening.(Headline: Euler Hermes ACI)

U.S. business profits are continuing to slow steadily and some industry sectors are in a weakened condition, according to economic analysis by global trade credit insurer Euler Hermes ACI. As a result, expectations for the future of the economy are worsening, and a rise in business insolvencies is expected for 2006.

Business profits as measured by operating earnings per share of the S&P 500 companies rose by a sharp 24 percent in 2004. But when the results for all of 2005 are tallied, expectations are that S&P 500 earnings will have grown only about 15 percent, and consensus forecasts for earnings growth in 2006 and 2007 are only about 8 percent and 5 percent respectively. Meanwhile, several industry sectors are currently in a 'crisis' state, most notably the automotive and airline sectors.

"The automotive industry is being affected by rising labor, pension, and health care costs, and a poorly conceived product range," said Euler Hermes ACI Chief Economist Dan North. "Also, the airlines are being besieged by labor and fuel costs, and a price war among the top carriers."

In 2005, however, the U.S. economy was more resilient than expected in the face of higher oil prices and interest rate hikes, according to Euler Hermes economic data tracking. This pleasant surprise was attributed to a very accommodating budget policy in response to hurricane damage, a strong housing market, low interest rates, and a strong ...