Too Much Kool-Aid in the Eggnog

As is typical this time of year, optimism is on the upswing, and many commentators have convinced themselves that the next 12 months will be better than the last. However, reports from the economy's front lines suggest otherwise.

For one thing, corporate chieftains -- who are generally not dour types -- are less than enthusiastic about prospects for the period ahead, as the Los Angeles Times' Money & Company blog reports in "Top U.S. CEOs Still Cautious about Economic Recovery":

The nation's top business chief executives remained cautious about the economic recovery, with a leading gauge of their outlook little changed in the last three months of the year.
 
The Business Roundtable's quarterly CEO Economic Outlook Survey Index ticked up slightly to 77.9 from 77.6 in the third quarter of the year. But that is still significantly down from the 109.9 level in the second quarter, before the European debt crisis began taking its toll on the global economy. The index can range from 150 to negative 50, with a figure above 50 signifying economic expansion and below 50 indicating a contraction.
 
"The findings of this survey reflect the continuation of a slow, uneven recovery characterized by ongoing economic uncertainty for American businesses," said the group's chairman, Boeing Co. Chief Executive Jim McNerney. The Business Roundtable, which represents top U.S. companies, surveyed 130 of its member chief executives.

In fact, a growing number of firms see bottom-line trouble ahead, as Barron's notes in "A Grim Forecast for Corporate Earnings":

With an unusually large percentage of companies revising their fourth-quarter estimates downward, prepare to see many results that miss the Street's current estimates.

When earnings season begins in earnest during the second week of January, we may be looking for the grinch who stole fourth-quarter profits.

The number of companies in the Standard & Poor's 500 index that have made downward profit revisions is at a level not seen since the 2001 economic recession, making sell-side analyst projections look rosy. A total of 96 companies revised their fourth-quarter earnings estimates downward, while 27 companies revised them upwards.

The remaining S&P companies—the majority of them—keep their profit outlook under wraps, and this is the information that analysts ultimately have in their quiver.

The consensus among Wall Street researchers calls for an 8.5% increase in S&P 500 fourth-quarter profit—to $24.44 per share—compared to the same period in 2010, according to Thomson Reuters. As recently as October, those same sages were looking for 15% growth.

For the full year 2012, analysts are looking for S&P earnings to climb 10% to $107.37.

The overall trend higher gets a boost from the energy sector, which continues to see the best earnings growth among S&P's 10 sectors (see table). The expectation is a nearly 24% jump year over year in fourth-quarter energy-sector profits—driven by rising oil prices.

But the effects of Europe's financial problems may have accelerated in recent months. Combined with slowness in emerging-market economies, including China, more companies may miss expectations for the fourth quarter or reduce their outlook for 2012.

...

"I think more companies will report the recession in Europe is starting to have an impact on their sales," says Ed Yardeni, a market strategist who runs Yardeni Research in Brookville, NY. "The 2012 number has gotten trimmed since the summer and probably will continue to be brought down."

As much as half of S&P companies' revenue is international, including about 14 percentage points from Europe. That will weigh on profitability, even if the U.S. jobs situation could be stabilizing and the American consumer has proved resilient.

"As goes the euro zone deleveraging, so goes the global economy over the next six to 12 months," writes portfolio manager Saumil Parikh in Pimco's 2012 economic outlook.

Meanwhile, businesses are (still) reluctant to expand their payrolls, as the Los Angeles Times' Money & Company blog reports in "Less than a Quarter of Companies to Hire in 2012: CareerBuilder":

The employment picture won’t change much next year, with less than a quarter of hiring managers planning to take on more employees.
 
In a survey of more than 3,000 human resource and hiring professionals, 23% said they’ll add full-time, permanent staff in 2012, down a bit from the 24% who said the same this year, according to job search site CareerBuilder. The percentage of companies that plan to cut staff -– 7% -- hasn’t budged year over year.
 
Seven in 10 firms either intend to keep their staff at the same size or are unsure of their hiring and layoff plans, according to CareerBuilder. Slightly more employers in the western part of the country will recruit new workers than in other U.S. regions –- but more companies there also plan to downsize their staff.

Once again, it appears that somebody put to much Kool-Aid in the optimists' eggnog. Hangover time?

Comments

[RPY]

A Run On The Global Banking System—How Close Are We?
Article here: http://www.informationclearinghouse.info/article30085.htm

This article paints a very bad picture, for the entire banking system.It says in essence, that the MF Global bankruptcy,may very well be the canary in the coal mine. That the average person in the street has no idea what the collapse of MF global means.Then it goes on to explain why they feel this way. They are expecting a system wide run.

[Doable Finance]

Some economists suggest otherwise. There seems to be political gain one way or another.

[Interesting interview]

Robert David Steele - Changing the Trajectory of the US Security State

For many years, Robert was in the Republican Party until Dick Cheney hijacked both the party and the White House. He briefly joined the Libertarian Party and considered running for Congress as a Libertarian (VA-11) but ended up focusing on Electoral Reform as the "one thing" that could mobilize all of us who are now shut out of the election and governance system. The two large parties have captured ballot access at the state level which allows them to control the public treasury at the national level.

http://www.youtube.com/watch?v=abt0DVQ54H0&feature=youtube_gdata

[roger]

The negatives in the US are to numerous to list
in the commentary section.suffice to say they
cannot be solved under the present conditions,
and that with 50% of the population below the
poverty line Europe has nothing to be envious
about,even our best university's are loosing
their edge. Those who see a bright future must
be spiking their eggnog with Psilocybin mushrooms .

[sharonsj]

I agree that this economic happy talk is psychobabble. There is no recovery and the job situation will only get worse. No wonder the local police are being militarized--they know civil unrest is just around the corner.

[Steve Thompson]

If you look behind the jobless claims and unemployment headline numbers, you will find that over 20 percent of metropolitan areas in the United States still have U3 unemployment rates in excess of 10 percent. While this is down marginally from peaks in 2009 - 2010, employment and by extension, economic health, is far from robust as shown here:

http://viableopposition.blogspot.com/2011/11/life-in-metropolitan-america-is-it.html