Corporate sentiment improved little based on our analysis of earnings conference call transcripts for second quarter earnings season. The message from our earnings recap commentary three weeks ago, “We Were Hoping for More,” is also appropriate for our latest Corporate Beige Book. We did see some signs of improvement in managements’ tone based on the use of more strong words. Talk of recession was virtually non-existent in the U.S., and the Brexit vote in the U.K. was generally not as disruptive as some may have feared. However, the ratio of strong words to weak ones suggests only tentative improvement, while foreign currency remained a drag and low oil prices are still in focus.

Mixed Corporate Barometer

When we count positive and negative words from earnings call transcripts, we see that sentiment improved some but not much. More strong words (e.g., strong, robust, solid, improving) were counted in the call transcripts sampled [Figure 1].

The word “strong” in particular saw a big jump from the first quarter (341 mentions) to the second (496). But the weak words (e.g., weak, soft, difficult, and challenging) also increased, leaving the ratio of strong words to weak ones worse than in the first quarter of 2016, only in line with the two quarters prior to that, and well short of the year-ago quarter [Figure 2].

This exercise does lack some precision given the varying reasons executives might use these words. Still, the result is a bit surprising given that the macroeconomic environment has generally improved during the summer, and some of the pressures on earnings over the past year, namely tumbling oil prices and the surging dollar, have let up.

We also observed a jump in the overall use of strong and weak words. This seems to suggest increased emotion, which could reflect more optimism but may also be related to investor uncertainty or the increasingly macroeconomic driven environment we are in.