Earnings Keep Beating Expectations

Third-quarter results are looking good as the economy stabalizes.


Source: Jeremy Glaser, Morningstar

The economy looks to be on the mend as earnings continued to beat expectations, indicating the worst over. But no one is yet suggesting that robust growth is around the corner.

Demand is showing signs of firming up. Businesses are starting to replenish inventories depleted over the last year, and consumers have started spending. Cost-cutting bolsters earnings as businesses continue to cut staff and capital spending boosting profitability, even though demand is still far off its peak.

High debt levels, elevated unemployment, and lower home values are making it hard for many consumers to stay current on their debt payments. Although some bank executives, believe that credit losses have peaked, these structural problems could take some time to fix themselves. One of the open questions of this recovery is if the real economy can thrive despite a weakened banking sector.

Some of the more impressive results so far have come from tech firms strong third quarter results, as demand for microprocessors continued to improve. PC manufacturers have been building up chip inventories in recent months in anticipation of the launch of Microsoft Windows 7, due out later this month, and strong end-of-year PC demand. An area of particular strength was in chips for mobile PCs.

My favorite topic Google posted a revenue increaseof 7% (12% excluding currency effects) to $5.9 billion. This growth is a slight acceleration from that of the last two quarters, potentially indicating that the worst of the advertising environment is over. Google also continued to cut costs. Operating costs declined, driven by reduced head count.