Earnings reports show economic growth

Earnings reports show economic growth

Associated Press

NEW YORK

This is an embarrassing time to be a corporate analyst. Seventy-five percent of the 151 companies in the Standard and Poor’s 500 index that have announced third-quarter earnings so far have beaten analyst predictions of their earnings per share.

That could mean one of two things: either analysts are bad at their jobs, or corporate America is finding ways to make money that aren’t easy for an analyst to pick up.

The second option is more likely, and that says a lot about why the economy seems to be sputtering along even though companies are prospering. Most of company profits are coming from cutting costs and minimizing tax charges, two things that are challenging for an analyst to predict.

In the short run, strong company profitability is not going to help an unemployed person get offered a new job. But these earnings reports do show that the economy is growing, albeit unevenly. Here’s what investors can take away from the last few weeks of this earnings season:

Consumers spent $14 billion, or 8 percent, more on things such as clothing, cars and cruises over the past quarter than they did at the same time in 2009, according to research by Standard and Poor’s.

Companies that focus on affordability account for most of the gains. McDonald’s Corp. brought in more customers than it has in 20 years with its expanded Dollar Menu, while online movie rental company Netflix Inc. ended September with 52 percent more customers compared with the same time last year.

Companies that typically take the lead as the economy comes out of a recession are bringing in more revenue and customers. That’s usually a sign that business activity is starting to pick up.

Consider the following news that investors got from bellwether companies last week, all in the span of just of a few days:

Boeing Co. said it plans to sell more commercial airplanes than it originally forecast this year

United Parcel Service Inc. raised its earnings predictions and said the average number of packages it ships every day in the U.S. rose 3.6 percent, and

Caterpillar Inc. said it continues to see strong demand in developing regions.

All 29 technology companies in the Standard and Poor’s 500 index that have reported third-quarter earnings so far had higher sales compared with the same period a year ago. Much of the spending comes from companies upgrading their computer systems and software.

Financial companies are the only group in the Standard and Poor’s 500 index that reported lower cumulative revenues this year versus the same period last year. Overall bank revenues have fallen by about $1 billion as companies look for new ways to make profits after lucrative practices such as overdraft charges and credit card fees were curtailed by new regulations.