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.
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”
TRANSFORMATION: Taiwan is now home to the largest Google hardware research and development center outside of the US, thanks to the nation’s economic policies President Tsai Ing-wen (蔡英文) yesterday attended an event marking the opening of Google’s second hardware research and development (R&D) office in Taiwan, which was held at New Taipei City’s Banciao District (板橋). This signals Taiwan’s transformation into the world’s largest Google hardware research and development center outside of the US, validating the nation’s economic policy in the past eight years, she said. The “five plus two” innovative industries policy, “six core strategic industries” initiative and infrastructure projects have grown the national industry and established resilient supply chains that withstood the COVID-19 pandemic, Tsai said. Taiwan has improved investment conditions of the domestic economy
MAJOR BENEFICIARY: The company benefits from TSMC’s advanced packaging scarcity, given robust demand for Nvidia AI chips, analysts said ASE Technology Holding Co (ASE, 日月光投控), the world’s biggest chip packaging and testing service provider, yesterday said it is raising its equipment capital expenditure budget by 10 percent this year to expand leading-edge and advanced packing and testing capacity amid strong artificial intelligence (AI) and high-performance computing chip demand. This is on top of the 40 to 50 percent annual increase in its capital spending budget to more than the US$1.7 billion to announced in February. About half of the equipment capital expenditure would be spent on leading-edge and advanced packaging and testing technology, the company said. ASE is considered by analysts