Sunday, October 26, 2008
Profits for 1,500 companies are expected to drop by 26.5 percent for the year.
SAN FRANCISCO (AP) — Buckle up and hunker down, because we’re in for a rough recession.
The stark message has grown louder and clearer this month as more investors have fled the disintegrating stock market and corporate earnings reports have delivered a procession of disheartening results, bleak forecasts and mass layoffs likely to exacerbate the economic misery.
“We are starting to see wholesale capitulation,” said Peter Morici, an economist and business professor at the University of Maryland. “We are headed for some very bad times.”
Although not everyone is quite as apocalyptic, the picture emerging from corporate America during the past few weeks has been gloomy.
If executives from some of the world’s largest companies are correct, here’s a few of the dreary things to expect in the next few months: Fewer — and cheaper — gifts under Christmas trees. Emptier restaurants because more people will be eating fast-food burgers when they do splurge on meals out. More unsold cars sitting in automobile lots. Longer unemployment lines as companies cut costs to offset their declining sales.
Even the bright spots aren’t exactly feel-good stories. Two of the largest tobacco companies stood by their profit projections while another raised its earnings outlook, largely because their cancer-causing products usually sell reasonably well even in tough times.
A recession hasn’t been declared by the national bureau of economists who look for two consecutive quarterly declines in the United States’ gross domestic product. That has yet to show up in government statistics.
But that’s an oversimplification that ignores other yardsticks used to identify a recession, including employment, household incomes, retail sales and business production. And business leaders aren’t waiting for the official proclamation.
“We are going into what is very clearly a recession mode,” Blake Jorgensen, Yahoo Inc.’s chief financial officer, told The Associated Press a few days ago after the Internet company disclosed plans to fire at least 1,500 workers — about 10 percent of the payroll — by the end of this year.
Caterpillar Inc., the world’s largest maker of construction and mining equipment, cited the “recessionary conditions” in the United States in a forecast that envisions little sales growth next year.
Even companies seemingly in strong positions are treading more carefully. Internet search leader Google Inc. and software kingpin Microsoft Corp., which combined have $35 billion in the bank, are keeping a closer eye on expenses.
The combined operating profits of 1,500 companies tracked by Standard & Poor’s are expected to drop 13 percent by the time all the third-quarter results roll in. For all of 2008, the operating profits for the same 1,500 companies are expected to be down 26.5 percent.
2008, The Associated Press. All Rights Reserved.