Optimism! American companies buy big ticket items
Uncertainty is a dreaded word in American businesses. If companies aren’t certain about the future, economists say they won’t invest in expensive, big-ticket items. With the latest uptick in long-lasting durable goods — the Census bureau reported that durable good orders rose 4.6% in December — some economists are sounding notes of optimism, and certainty.
“Some of pop was driven by Boeing orders,” said Julia Coronado, the chief economist with investment bank BNP Paribas. “And some of that may fade as the Dreamliner gets sidelined, but it wasn’t just a story of airplanes. It was a broad-based rebound in investment spending. That’s something that had been very weak in the fall, and we worried about quite a bit. The fact that that’s rebounding is certainly a welcome development.”
But factory goods orders aren’t the only numbers beating expectations, said Coronado. About two-thirds of companies are also reporting higher-than-expected earnings.
“We need to keep in mind that the expectations were already pretty subdued,” she said. “We’re already at a point in the profit cycle where it’s hard to generate very strong profits — businesses have already cut costs and so on. So at this point, I think, the slow economic growth means slow growth in profits. But that said, the corporations are certainly very resiliant and that’s a welcome thing as well.”
That’s not going to be enough to impress the Federal Reserve though, says Coronado.
“Nothing we’ve seen reaches their bar of substantial improvement in the outlooks, so I think right now the Fed sees market developments and economonic developments, thinks things are going okay, but would like to see things go a lot better. So it’s steady as she goes,” she said.
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