'Enormous Gains' Pave Way To Optimism for U.S. Job Growth
By Brittany Stepniak
Corporate profits within American based businesses are projected to ease recent economic woes. Gloomy outlooks are being replaced with hope in what has been called "the quickest rebound since the late 1940s," evoked by enhanced earnings predictions, and surging sales overseas.
According to JPMorgan Chase & Co., earnings are expected to rise by approximately 10 percent per year for the next two years. Restored confidence has prompted Macy's Inc. (M) to raise its annual profit forecast, Target Corp. (TGT) and Intel Corp. (INTC) to increase dividends, while DuPont Co. intends to invest over $500 million in an attempt to promote and push production.
Robert Mellman, economist at JPMorgan, said increased overseas sales have successfully sharpened U.S. demand. That combined with the Federal Reserve's promise to maintain near-zero interest rates for an extended period of time create beneficial circumstances for the earnings outlook.
Boston-based money manager at Pioneer Investments John Carey suspects the Standard & Poor's 500 Index will climb up at least 10 percent from the end of 2010 to the end of 2011. Bloomeberg reported on Carey's predictions for the future of the economy:
Investors in financial companies such as banks may see some “nice gains,” and technology stocks including semiconductors are a good bet. Mergers, acquisitions and share- repurchase activity also may pick up, while dividend increases will become more widespread and frequent as companies armed with stronger balance sheets put their cash to work.
“There’s certainly a lot of gunpowder...Conditions for better corporate profits will be there for the next couple of years, barring some catastrophe...If this is going to be a normal business cycle, we have a lot of growth still to come.”
In the eight quarters preceding the end of 2010, earnings -adjusted for inventory costs and depreciation- climbed at an average rate of 29.9 percent per year. The United States has not seen growth at such a strong, steady rate in more than 50 years.
Impressive gains were achieved with little aid from the economy. With inflation taken into consideration, the growth rate was about 1.5 percent per year during that time period.
That being said, the profits rebound should be sustainable for a minimum of three years.
The latest figures show earnings rising at a 5.3 percent annual pace in January-March from the prior quarter, while gross domestic product expanded 1.8 percent.
Relief is here for struggling companies. For one, energy costs are taking a dip as crude oil prices have fallen 13 percent since April 29 when it peaked at $113.93. According to Bloomberg:
Businesses also have more clarity on the parts- supply shortages caused by the March earthquake in Japan, and a rebound in motor-vehicle production is “a bullish sign” for the labor market, said Joseph Carson, director of global economic research at AllianceBernstein LP in New York.
“We have a lot of positives lined up,” Carson said. “Unless we see a big change in underlying conditions such as balance-sheet strength, record liquidity, pent-up demand and easy monetary policy, I doubt the economy is at risk.”
With optimism and profits surging, there is great incentive to generate even more profits. Carson said this is brought forth from investment. As companies improve and gain, those gains will eventually trickle down to company employees. As workers gain the power to bargain, their wages too will begin to rise.
It may take a few years to play out as predicted, as employment gradually improves and paves the way to further progress and greater profits.+4
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