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

Austin American-Statesman - - BUSINESS & PERSONAL FINANCE -

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.”

Tony Gu­tier­rez

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.

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