Hope for the economy: 3rd quarter earnings rise, but will the recovery last?
Good economic news, an item in short supply for the past year, rebounded with better than expected earnings reports from a variety of companies. For the first time in a year, the Dow cracked the 10,000 mark.
Google’s earnings rise
Google beat expectations with a 27% increase in the 3rd quarter, signaling an end to the recession in the search-advertising market. In fact, Google CEO Eric Schmidt said he definitely sees a light at the end of the tunnel.
Cash for Clunkers
“While there is a lot of uncertainty about the pace of economic recovery, we believe the worst of the recession is behind us,” Schmidt said. A caution: Cash for Clunkers drove a lot of search in the 3rd quarter, but Google feels the strength of back-to-school and health searches are enough to pronounce the recession at an end.
Blue chips lead recovery
Strong 3rd quarter results from Travelers, AT&T, McDonald’s, Merck, 3M and other blue chips have kept the momentum going. Traveler’s reported a huge gain of 139% over last year, Amazon turned in a 22% gain from a year ago, and Merck came in 3% above last year.
Down from ’08, but still had good results
Even those losing ground from last year showed signs of life. Companies such as 3M, AT&T and others saw lower earnings from 2008, but were still in the plus column for the 3rd quarter of 2009.
What does this really mean for the economy?
The fragile recovery started in March of 2009 and shows some good vital signs. The need for caution does exist, however. New housing starts are down, jobless rates are up, and commercial real estate loans loom as the next big crisis. But with generally good earning reports rolling in, and a gain in retail sales for the first time in over a year, economists continue to say the worst of the recession is behind us.
The elephant in the living room – unemployment
With experts like former Federal Reserve Chairman Alan Greenspan predicting higher unemployment, perhaps surpassing 10%, can the recovery be sustained? More than 15 million Americans are out of work – the highest in 26 years. Companies are getting more work out of fewer employees. And while that keeps figures like earnings reports in the plus column, a high unemployment rate will continue to hamper economic recovery.
Unemployment may be worse than reported
Worse, many experts believe the unemployment rate is actually closer to 17%, as opposed to the reported 9.8%. President Obama maintains that when he took office, the economy was shedding jobs at a rate of 700,000 a month, and that it shed only 263,000 in September. The discrepancy? Experts point to the number of people working part time who would rather work full time, and the number of people who have simply given up looking for a job.
Lagging indicators should rise, however
Another problem is that consumers still aren’t buying – and that’s a worldwide problem. If this doesn’t change soon, companies won’t have a reason to add new workers. The state of the economy is better than it was in March of 2009. If the various economic indicators that have been rising, such as earnings, can continue to rise, then they should have the net impact of improving lagging indicators such as unemployment.
