Posted on 05/05/2006 1:09:23 PM PDT by BenLurkin
NEW YORK (AP) -- A surge in consumer spending helped corporate America achieve its 16th straight quarter of double digit earnings growth, and even the return of $3-per-gallon gasoline hasn't deterred companies from issuing upbeat forecasts for future quarters.
As of Friday morning, with 423 companies in the Standard & Poor's 500 index reporting earnings for the first quarter, 285, or 67 percent, beat Wall Street forecasts. Another 66 companies, or 16 percent, matched expectations, while 72 companies, or 17 percent, failed to meet analysts' estimates.
The results extended a corporate winning streak: Over the past eight quarters, 66 percent of S&P 500 companies have beaten estimates, with 15 percent matching and 18 percent below estimates.
The highlight of the quarter was Exxon Mobil Corp. posting the fifth-highest quarterly profit in history, but other industries and sectors have outperformed as well. Earnings rose an average of 14 percent from a year ago, nearly double the historical average, according to Thomson Financial.
"The nice thing about this quarter is that while the numbers continue to be good, it isn't focused all on energy," said Jeff Kleintop, chief investment strategist for PNC Financial Services Group in Philadelphia. "We're seeing strength in industrials, retailers, telecom. Even health care had a decent quarter."
Furthermore, despite the belief of economists and market watchers that economic growth will start to decline as early as this quarter, fewer companies have issued profit warnings.
According to Thomson, the ratio of negative to positive profit forecasts stands at 1.9-to-1 for the S&P 500 companies, and 1.5-to-1 for all companies that have reported first-quarter earnings. The historic average ratios stand at 2-to-1 for the S&P 500 and 2.2-to-1 for all companies.
"Overall, we still expect annual earnings growth of about 8 percent year-over-year, and it's likely we may edge that number up a little bit," said Scott Wren, equity strategist for A.G. Edwards & Sons. "Yes, there's some economic slowdown coming, but it's really looking pretty good, all things considered."
Wren said high gasoline prices, which are expected to remain a long-term problem, won't have a pronounced effect on consumer spending. With 70 percent or more of the economy based on consumer spending, there had been a concern that high energy prices would force consumers to curtail their purchasing habits.
"Maybe if it gets to $6 per gallon, and I'm not saying it will, but maybe then we'll see people cut back," Wren said. "But right now, I just don't see it."
Instead, the slowdown in corporate earnings will come from higher costs incurred by businesses, including higher energy costs. Companies will be hesitant to pass along their higher costs to consumers for fear of losing business in a competitive market.
Yet despite a recent trend of higher dividends and increased share-buyback programs, companies are still investing their excess cash in new products and processes. Growth in capital spending has risen about 10 percent from last year, which is healthy, Kleintop said.
"Invest too much, and you'll have overcapacity that you'll then have to write off," Kleintop said. "This is about right, and it's pretty solid for this point in the business cycle, where you expect profits to start slipping."
Still, this could be the final quarter of double-digit profit growth as companies start to conform to their historic averages.
"We all know it's coming, and I think for the most part, we're prepared to see that lower growth. I don't see companies being punished for it at this point unless they really slow down for now good reason," Kleintop said.
The mainstream press is going to have to create a crisis to scare Americans back to watching TV and listening to the radio...05 May 2006
Gasoline increases will take a little while to sink in. I'm guessing they are doing so now and people will start to cutback their spending. Economic slow to follow. This could be a disaster come November/
Consumer Confidence Hits 4-Year High
Consumers shrugged off higher gasoline prices in April and sent a widely watched barometer of consumer confidence to its highest level in almost four years. The New York-based Conference Board said that its consumer confidence index rose to 109.6, up from a revised 107.5 in March. April's reading was the highest since the index touched 110.3 in May 2002.
Consumer confidence buoyed by a robust economy and plentiful employment opportunities has confounded Democratic strategists. "There is no justification for this confidence," said Howard Dean, chairman of the Democratic National Committee. "It is in direct contradiction to our message that this is the worst economy in U.S. history."
Dean went on to blame Republican initiated tax cuts for a "false sense confidence." "This can't really be happening," said Dean. "The Republican claim that letting taxpayers keep more of their earnings stimulates them to work harder and invest more conflicts with everything I know about economics. Rising incomes are luring consumers into a false sense of confidence."
Dean says the DNC will get things turned around. "We are stepping up our criticism," said Dean. "By election day, we think voters will be ready to punish Republicans for a disastrous economy even if statistics stubbornly continue to indicate economic prosperity."
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http://www.azconservative.org/Column_Archives.htm
Just like they did last summer when gas hit $3.00 a gallon? It sure is taking a long time for high fuel prices to hurt our economy. The CPI less energy is 2.2% over 12 months to March -- the same as in 2004. The PPI less energy is up 0.7%. Import prices less energy also up 0.7% over 12 months. Not too bad. Welcome to FR, btw. You'll find many here who share your doom.
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