4 January 2001, 17:10 US Press: Corporate profits seen falling for 1st time since '98
By BridgeNews
New York--Jan. 4--Many economists expect a decline in corporate
profits for the first time since 1998, the Wall Street Journal's
interactive edition reported Thursday. They say there's little Wednesday's
rate cut by the Federal Reserve can do about it, at least in the first
half of the year. Though most economists and analysts are stopping short
of forecasting a recession, some are already using the "R" word to
describe the corporate-profit environment, the report, which carried the
viewpoints of many economists, noted.
If that turns out to be true, then it would be the first so-called
profits recession since 1990, according to First Call/ Thomson Financial,
a company that compiles earnings estimates from analysts on Wall Street,
the report said.
"The odds are pretty good we'll have a profits recession," Chuck Hill,
director of research at First Call, was quoted as saying in the report.
According to him, although current estimates call for earnings of
companies in the Standard & Poor's 500-stock index to have grown 4.3% in
the fourth quarter of 2000 from a year earlier, the figure would likely be
downgraded, the Journal added.
Arguing that the Fed's rate-cuts would not have a bearing on corporate
profits immediately, Hill Said: "It takes nine to 12 months for the Fed
action to have an impact."
Some economists, tracking government data are even more downbeat, with
several predicting two consecutive quarters of declines, the unofficial
definition of a recession, according to the report.
"The effect of this rate reduction on profits won't be meaningful in
the short-term," William Dudley, chief economist at Goldman Sachs Group
Inc. was quoted as saying.
Some economists say declining corporate profits could spark a sharp
drop-off in employment, consumer spending and business investments and
technological advancement would ensure that cutbacks would be faster than
normal, it said.
"Companies will try harder to protect profitability than they used to,
and that intensifies the slowdown," the report quoted Neal Soss, chief
economist at Credit Suisse First Boston in New York, as saying.
A substantial drop in jobs, according to the report, could mean a
faster-than-usual decline in consumption, which has been the driving force
of the economy during the expansion.
"You may not get the buffer of wage income and consumption that you
used to get in the early stages of a slowdown," Soss said.
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