Sun, Apr 19, 2009 page11

• US economy still weak in spite of better earnings

  • AP
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  US firms are turning in surprisingly good quarterly earnings — including better-than-expected news from two relative weaklings in the banking and manufacturing industries — but economists say a recovery is probably still months away.

  Of the 52 companies in the Standard & Poor’s 500 stock index that have reported first-quarter earnings so far, 62 percent have posted results that beat Wall Street expectations. And recent data have provided faint hope of a comeback.

  Not so fast, economists say.

  Mark Vitner, senior economist at Wachovia Corp, said that despite “just maybe we can see some light at the end of the tunnel now,” an end to the recession won’t likely come until closer to the end of the year.

  Even under that scenario, high unemployment would stretch well into next year.

  “I don’t think we should oversell these flickers of improvement,” said Brian Bethune, an economist with IHS Global Insight. “An actual recovery is still several months into the future — it’s not imminent.”

  On Friday, Citigroup Inc and General Electric Co, two of the most beleaguered firms in their industries, turned in first-quarter results that beat Wall Street expectations.

  Citi lost money for the quarter, but before paying dividends — which were tied to the government’s US$45 billion investment in the company — it actually earned US$1.6 billion.

  That report followed surprisingly solid earnings from JPMorgan Chase & Co, Goldman Sachs Group Inc and Wells Fargo & Co earlier in the week. But some analysts say the earnings announcements are concealing the depth of the financial industry’s woes.

  Goldman Sachs changed its calendar so a US$780 million loss in December didn’t drag down its reported earnings for the quarter.

  Wells Fargo minimized possible future losses on its purchase of failed bank Wachovia.

  And thanks to a recent rule change, many banks were able to pump up the values of the toxic assets at the heart of the credit crunch.

  The change is “like a gain that goes right to their bottom line,” said Lawrence Brown, an accounting professor at Georgia State University.

  Looming over the banks is uncertainty over “stress tests” that regulators are conducting. Investors don’t know how much information will be made public when results are announced May 4. But even faint reports of trouble could threaten the industry.

  GE, meanwhile, said its first-quarter earnings fell 36 percent on sharply lower profits at its troubled finance arm. GE has a stake in nearly every sector of the economy, from light bulbs to locomotives.

  “We’ve come from a period where people thought the world was going to end to a period that is a little better,” Keith Sherin, GE’s chief financial officer, told analysts in a conference call.

  There has been some silver in recent economic data. The number of Americans receiving jobless benefits topped 6 million for the first time, but jobless claims were down for the second weekend in a row.

  And housing construction unexpectedly plunged last month, though construction of single-family homes has stabilized somewhat.

  Most analysts think a bottom has been reached in sales of new and previously occupied homes. A series of Federal Reserve snapshots from around the country released earlier this week also found some faint signs that the steep drop in economic activity that began last fall is starting to level off.

  But new problems could still emerge. A wave of defaults linked to commercial mortgages has caused concern for companies that loaded up on securities backed by the those loans. Securities tied to credit cards pose a similar fear.
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