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Unemployment may hit firms' incomes
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13:47, July 07, 2009

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NEW YORK/CHICAGO: Earnings at such companies as Ford Motor Co and ArcelorMittal may continue to decline in the next three months as the highest unemployment in a quarter-century keeps consumers from spending.

The year-over-year profit slide for Standard & Poor's 500 Index members may narrow to 21 percent from July through September, after declines of an estimated 34 percent in the second quarter and about 60 percent in the year's first three months, according to data compiled by S&P and Bloomberg. Earnings may rise by year-end based on comparisons to late 2008, which was roiled by the meltdown in financial markets.

Consumers in the US, the world's largest economy, remain concerned about jobs after unemployment reached a 26-year high in June, analysts and investors said. Until Americans start spending again on cars, cell phones and clothes, most US, Asian and European companies may keep squeezing out costs.

"So long as unemployment keeps rising, the consumer will continue to be very conservative," said Walter Hellwig, who helps manage $30 billion at Morgan Asset Management in Birmingham, Alabama. "Any improvement will come from cost cutting, and that's not sustainable. If you have no anticipation of top-line growth - it will be a little tougher to generate that enthusiasm into the fourth quarter."

US consumer confidence slipped unexpectedly in June, reflecting unemployment that rose to 9.5 percent and wealth destruction triggered partly by a drop in property values. US employers slashed 467,000 jobs last month, and about 6 million jobs have been eliminated since the recession began in December 2007. June's jobless rate was the highest since August 1983.

Almost 67 percent of S&P 500 members topped analysts' estimates for first-quarter earnings after eliminating jobs and closing plants, Bloomberg data shows. That helped the S&P 500 index rally 15 percent in the second quarter, the most since 1998.

The benchmark MSCI Asia Pacific Index surged 28 percent in the quarter, the largest gain since the gauge started in 1988, while Europe's Dow Jones Stoxx 600 Index rose 17 percent, the biggest advance since 1999.

The second-quarter earnings barrage begins in the US tomorrow with aluminum producer Alcoa Inc, the first member of the Dow Jones Industrial Average to report results. Alcoa is based in New York.

"The analysts will probably lowball things once again and the companies will be able to jump over it again," said Charles Smith, chief investment officer for Fort Pitt Capital Group Inc. The Cleveland-based firm has $800 million assets under management.

"If the teacher expected you to get a "C-" and you get a 'C', then the question is: what's your potential as a student?"

Railcar shipments and other US shipping data provide scant hope that manufacturers are gearing up for increased demand, said Mark Demos, a Minneapolis-based portfolio manager who helps manage $21 billion at Fifth Third Asset Management. Railcar shipments are down 19 percent so far this year and 18 percent in the week ended June 20.

Demand is best described by the title of the 1966 novel, Been Down So Long It Looks Like Up to Me, said Andrew Bartels, an analyst at Cambridge, Massachusetts-based Forrester Research Inc. Technology purchases in the US will decline 5.1 percent this year, with a recovery in the fourth quarter, he said in a report last month.

Mountain View, California-based Google Inc, the biggest Internet advertising company, may post its second-slowest rate of profit growth since selling shares to the public. Chief Executive Officer Eric Schmidt said on June 30 the economy is bottoming and will be better in a month.

Microsoft Corp, based in Redmond, Washington, may report its second straight sales drop, according to a Bloomberg survey of 22 analysts. Prior to the quarter ended in March, sales at the world's largest software maker had never declined.

Mobile-phone users are trading down toward lower-priced phone plans that don't require buying a new handset, said Andreas Mark, a Frankfurt-based fund manager at Union Investment GmbH with about 30 billion euros ($42 billion) of equity assets under management.

Source:China Daily/Agencies

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