The World is Economically Lethargic – So Why Are Corporate Earnings at an All-Time Record?
Lance Spicer, Editor, Trident Confidential, 2 May, 2:42 PM
Is there a different “reality”? Has there been some sort of disconnect in the economy where you can have bad (or ordinary) economic news and great earnings from companies?The answer is yes.
GDP data blinds us. For example, the US economy grew at 2.2 per cent (annualized rate) in the March quarter, which was well short of the average forecasts of economists who had predicted 2.7 per cent. This on the surface was quite bad, but the market kind of ignored it and pushed it’s way higher on the day the news came out and the reason was it wasn’t a bad a figure at all. In fact it was viewed very positively. It was the make up of the GDP number that made the difference. It showed a big drop in government spending (down 5.6 per cent) and a smaller contribution from inventories than expected (0.6 per cent versus 1.8 per cent in the December quarter). More than offsetting this was an increase in personal consumption of 2.9 per cent, which was the biggest gain in more than a year and this was attributed to a big increase in spending on cars and construction.
What this tells us is that the US consumer, who makes up 70% of the US economy, is feeling good and confident enough to buy new cars and build houses, and spend lots of money on other stuff too. Jobs are coming back also so they are confident of keeping their jobs now too, as more and more American businesses start employing more people, particularly in manufacturing and technology.
What makes this recovery so different is that it is unique in that there has been little in the way of government spending support – the private sector is recovering the US economy virtually on it’s own. Government employing people and providing economic incentives assists most recoveries – this one has had just the opposite. If you were to compare this recovery with others, on an apples versus apples basis, and deducted government GDP stimulus from other recoveries, you’ll find this one is one of the most powerful recoveries in the private sector.
That’s why earnings are so high and when you also consider the emergence of China and other emerging economies and how they are buying more technology from the US, as well as very cheap borrowing costs, is it any wonder we are seeing the earnings surprise so much to the upside?
To read the whole article by Lance please click on the link below:
http://www.tridentconfidential.com/news-articles/the-world-is-economically-lethargic-so-why-are-corporate-earnings-at-an-all-time-record.aspx
