Daryl Montgomery of Seeking Alpha reconciles the stellar earnings reports this earnings season with the poor U.S economic reports.
So far this earnings season, company reports indicate that business is going gangbusters. U.S. economic reports are painting exactly the opposite picture, however. This may not be as contradictory as it appears on the surface.
As for earnings, Intel (INTC) reported record numbers yesterday, after Alcoa (AA) upgraded its forecast for global aluminum sales and U.S. railroad company CSX (CSX) said shipments were up considerably. This morning, however, U.S. retail sales numbers disappointed again, falling 0.5% in June following a 1.1% drop in May. Mortgages for home purchases fell to a 14-year low. According to the non-farms payroll reports, close to a million people net left the U.S. labor market in May and June because jobs were so scarce that they simply gave up looking. Later today, the Federal Reserve is expected to lower its expectations for second half U.S. economic growth.
One of the important things to note is that both Intel and Alcoa are global companies. While many people assume that the U.S. is Intel’s major market, it isn’t. East Asia dominates Intel’s sales. Strong Intel numbers generally indicate a robust East Asian economy. Growth has indeed been strong there. Intel’s biggest growth sector by far was servers, which were up 170%s…
…Investors should not make judgments for the U.S. economy based on figures for global companies, especially when the U.S. is only a minority of their business. The U.S. economy can be much weaker than Asian economies. Asia was in the driver’s seat pulling the world out of the Credit Crisis recession and the U.S. followed.
Just another reminder that U.S. investors would do well not to focus entirely on U.S. economic reports. As pointed out by Moody’s interactive website below, much of the world is currently experiencing strong economic growth.
HT: Barry Ritholz
