Thursday, October 25, 2012

Corporate Optimism Fades

Actually, while consumers might be a little more optimistic, this stuff tends to accumulate. When you see earnings on your mutual funds and 401Ks collapsing, that can be pretty harsh. Folks turn bearish and they take it out on their political leaders. I think there's a lot of amorphous economic disenfranchisement out there, and that could be a November surprise on election day.

Either way, check the New York Times, "Companies Aren't as Optimistic as Consumers":

Consumers may finally be feeling more optimistic about the economy, but corporate America is not sharing the sentiment.

A host of market bellwethers reported disappointing results Tuesday and cut their outlook for future growth, sending stocks into a tailspin and highlighting the divide between companies and consumers.

It was Wall Street’s second big drop in the last three trading days, with household names like Xerox, 3M and DuPont leading the way down as the Dow Jones industrial average dropped more than 240 points. The Dow is now down 3.7 percent from its high for the year reached earlier this month.

The concerns among business leaders extend well beyond earnings — a Federal Reserve regional survey released Tuesday showed new signs of weakness in the domestic manufacturing sector, even as global growth slows.

Corporate executives also reiterated the danger posed to the economy if Washington cannot avert sharp tax increases and spending cuts in early January, the fiscal cliff that many economists say heightens the risk of recession. This uncertainty is compounded by the prospect of a new Fed chairman by early 2014.

The pessimism is all the more notable because after years of wariness, consumers are feeling more buoyant. Consumer confidence is at its highest point since before the financial crisis. The housing market is showing signs of life. And retail sales actually sped up in the third quarter, fueling the hopes of retailers for a robust holiday season.

“Normally, you think of consumer confidence as more important,” said Ethan Harris, chief United States economist at Bank of America Merrill Lynch. “But the business sector is a quarter or two ahead this time.”

One reason for the disparity is that businesses are much more focused on conditions abroad than consumers in the United States. With growth in China slowing and parts of Europe in recession, cooling international sales are weighing on corporate earnings. The prospect of slowing global demand for oil generated a sell-off Tuesday, as crude fell 2.2 percent, to $86.67, its lowest level since July.

Indeed, the sectors that rely more on international sales have been among those hit the hardest. Xerox, 3M and United Technologies each lowered their outlook.

While the fiscal cliff looms large in boardrooms, consumers are less concerned about whether Congress will extend Bush-era tax cuts set to expire in January and whether it will come up with a deal to cut the deficit and avert automatic spending cuts.

“Clearly, there is something going on, with consumers going one way and businesses going the other,” said Paul Ashworth, chief United States economist at Capital Economics.

Looking ahead, optimists say the new willingness of consumers to spend will ultimately bolster corporate results, but there is a lingering fear that the struggles of American companies may be pointing the way.

“The heads of the large corporations have their fingers on a lot of information,” said Bernard F. McGinn, president of McGinn Investment Management. “The decisions they make are of a scale many times what the consumer does.”