In my last blog, I had discussed recently concluded quarter results about various firms like Goldman Sachs, JPMorgan Chase, Microsoft, Amazon. Looking at the current economic outlook and the way the organizations are slashing their payroll to remain in profit, one question comes to everyone's mind "Do the quarterly results of the firms represent the economy outlook?"
Goldman Sachs declared record quarterly profits in their history surpassing analyst expectations, while Microsoft and Amazon could not meet analyst expectations to reach their targets. We can consider sentiment plays an important part when DOW-JONES tumbled upto 6600 in Mar'06 in response to continuous failure of banks in US and most of the retailer's same stores sales were plummeting. Since March '09, DOW has recovered upto 9200 in July 31st, increased ~40% and it shows the optimism across the board rather than an economic outlook. There are not much changes to the economy since March '09, as Unemployment has increased from ~8.5% to ~9.7% from Mar '09 till Jul '09, 57 more banks have filed Chapter 11 bankruptcy since Jan '09, industries are still cutting payrolls, job cuts were 467,000 in Jun '09, 322,000 in May '09.
Results of the banks are showing optimism in the economy as there is positive sentiment in the economy for signs of stabilization, but they do not provide the exact picture of the economy. Rather firms whose profits are directly related to the consumer spending such as Discount Retailers e.g. Walmart, Sears, Electronic retailers like RadioShack, BestBuy, J&R, online retailers e.g. Amazon, OfficeDepot and most of the retailing firms' results are not showing any improvement even though they are cutting their payroll to remain in profit. And till the time unemployment is rising, and there wont be any positive signs on people's spending there can't be any growth to the economy.
Obama led government is putting their every effort to increase consumer spending and provide employment by increasing construction, bridge, roads related contractual works. But DOW's 2600 points jump from Mar '09 till Jul '09 does give breath to consumers till the time teh industries feel confident about the economy and again start hiring.
So we can say economy is stabilizing and it will take 9/12 months before it shows good signs of improvement.
-Amit
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2 comments:
It would be interesting to see next quarter results (analyst would be comparing with this quarter)
Anand, Banks will be able to maintain good results in presence of better trading environment and their big-way speculation in commodities. But interesting to see how the retailers are making profits and they directly represents the economy's picture.
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