Better times for workaday firms hint at second wind for recovery
Housing, hiring still mired in deep funk, but cornerstones of commerce seeing more positive signs
People aren’t spending money like they used to. Unemployment is still flirting with double digits. And the housing market is still shaky. So the future looks bleak for the economy, right? Not necessarily. A handful of surprisingly good earnings reports Thursday suggested that some of the major U.S. companies that make things and move them around — including Caterpillar, 3M and UPS — could lead the way to an economic recovery.
It would be an unusual path back to better times. Consumer spending and housing usually lead the way.
But all three of those economic bellwether companies, plus AT&T and Union Pacific railroad, indicated business was picking up. And most said they expected it to get even stronger later this year.
As the economy struggles to mount a lasting recovery, Wall Street has been looking for evidence that companies are actually pulling in more money — not just increasing profits by reducing costs.
Investors liked what they saw Thursday. The Dow Jones industrial average rose more than 200 points.
The big question is whether companies will stop hoarding cash and start spending more to expand their operations and hire freely. They’re likely to do that only after they feel confident that demand from their customers will justify the cost of new hires. Outside the financial sector, American companies had stockpiled more than $1.8 trillion in cash through the end of March, a 26 percent increase over the same period in 2009.
If the rosy corporate outlooks give companies the confidence to step up hiring, “then this can be better than a good quarter or good second half” — it can mean the economy is good, said Chris Hobart of Hobart Financial Group in Charlotte, N.C.
Caterpillar Inc., which makes heavy machinery and is considered a bellwether of manufacturing activity, said its orders were growing and it was selling more equipment to the mining and energy industries.
3M Co., which makes everything from Post-it notes to films for flat-panel televisions, said it was optimistic about the recovery and raised its forecasts for revenue and profits.
Although Union Pacific Corp. said it was taking on more carloads and expected to haul more goods, there were notes of caution. UPS Inc., for example, raised its earnings outlook but said much of its confidence about the rest of this year comes from international shipments.
And two government reports Thursday sent a reminder that the weak housing and job markets are making it hard for the recovery to take flight. Sales of previously occupied homes fell in June. And new claims for unemployment aid jumped last week. Together, they signaled that companies won’t see demand from their U.S. customers jump anytime soon.
New claims for unemployment insurance jumped by 37,000 to a seasonally adjusted 464,000, the Labor Department said. Requests for jobless benefits have been stuck near 450,000 since the beginning of the year, after falling steadily from a peak of 651,000 in March 2009. In a healthy economy with rapid hiring, claims usually fall below 400,000.
Separately, the Conference Board, a private research group, said its gauge of future economic activity dropped in June, the second decline in three months.
Most of the forces that have brought the economy out of other steep downturns either aren’t strong enough to do it this time or are absent altogether. Spending by everyday Americans has risen an average of about 2.5 percent in the most recent three quarters with available data. In the bounceback after the steep 1981-82 recession, it grew nearly three times as quickly.
The housing market has shown signs of life, but the housing collapse was part of what got the nation into its mess, and home prices face a long climb back. And the unemployment rate has stayed stubbornly close to 10 percent.
Federal Reserve chief Ben Bernanke told Congress on Thursday that the economy needs continued government stimulus spending to strengthen the recovery and reduce unemployment. But more stimulus spending would be a tough sell with congressional Republicans, who say the first round hasn’t helped enough.
“The economy and the housing market are going to remain stagnant for a long time,” said Sam Khater, senior economist at real estate data provider CoreLogic. “There’s nothing that’s going to propel sales anytime soon. It’s all about jobs and income growth.”
Unemployment has lingered near 10 percent, and the Labor Department says that in June, new claims for benefits jumped by 37,000 to a seasonally adjusted 464,000. At a job fair in Plano this week, Saida Laktiri, left, of Garland made her pitch to EFA Processing recruiter Roni McConachie.