Share buyback boom subsides

US company profits beat expectations in the second quarter of 2014. Companies in the S&P 500 index grew earnings per share (EPS) by 8.4% on average – the best quarterly showing in three years.

But dig a bit deeper and the profit picture isn’t as robust as it looks. And this is true not just of the recent quarter, but of the entire post-crisis profit rebound.

For a start, healthy earnings growth doesn’t reflect the underlying economy. Sales (revenue) growth has been very weak, as the chart shows. Instead, the boost to earnings has come partly [...]

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