Economic Wind Doesn’t Fill Companies’ Sales; This is a break from the usual pattern, where public-company sales increase at a much faster pace than overall sales during economic expansions and fall much more during recessions.

Economic Wind Doesn’t Fill Companies’ Sales

JUSTIN LAHART

Updated June 2, 2014 3:48 p.m. ET

Even with a tepid economy, it is surprising just how difficult it has been for U.S. companies to get sales going.

With nearly all the results in, it looks like revenue at companies in the S&P 500 rose 3.6% in the first quarter from a year earlier, according to S&P Dow Jones Indices. That is only marginally higher than the 3.4% gain in economywide sales, as measured by final sales of goods and services produced in the U.S.

This is a break from the usual pattern, where public-company sales increase at a much faster pace than overall sales during economic expansions and fall much more during recessions. Nor is the weakness of corporate sales a recent phenomenon. They have increased just 3.4% over the past two years, while economywide sales have risen 6.9%.

One reason corporate sales have slowed relative to the economy is probably that companies have become much more reliant on revenue from overseas, and many of these economies have been weak.

At Caterpillar, CAT +1.50% North America accounted for just 39% of sales last year, compared with 52% a decade earlier. That came about as a result of the heavy-equipment maker shifting more of its business to emerging markets, particularly China. Caterpillar’s sales over the past four quarters were down 12% from a year earlier.

Another reason is that the stock market is made up of companies that don’t exactly reflect the makeup of the U.S. economy, and those differences are hurting public-company sales in ways they didn’t in the past.

The financial sector accounts for about 13% of S&P 500 sales. Excluding the Federal Reserve, though, finance and insurance accounts for only about 5% of total output by U.S. industries. And the financial sector has been constrained by a variety of factors—including low interest rates, reduced trading and a tougher regulatory environment—that it hasn’t seen in past expansions. The result has been much slower revenue growth.

The energy sector, to take another example, accounts for about 14% of S&P 500 sales but only about 4% of output. Oil and natural-gas prices, less tied to the U.S. economy than in the past, have been moving sideways over the past two years, damping sales.

It isn’t clear that the break from the past in the way overall revenue at S&P 500 companies has been performing is going to mend itself soon. Not when China’s growth is coming under pressure, and global interest rates show little sign of turning up. So while investors should be pleased that the U.S. economy seems to be accelerating after a tough first quarter, they should be careful not to translate that into expectations of the sharp acceleration in sales they enjoyed in past cycles.

Slower sales growth ultimately makes for slower earnings growth. The economy might do a lot better in the year ahead than the stock market does.