Next 2 weeks’ earnings could be real test for U.S. economy

(Reuters) – A long hoped for improvement in the economy appears to be manifesting itself in second-quarter U.S. earnings, but the next two weeks could be the real test.


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Companies such as General Electric Co (GE.N) and Intel Corp (INTC.O) have reported solid results. In addition, GE believes now is a ripe moment to spin off its private label credit card division in the hopes growing consumer demand will make it more attractive.

Intel declared that personal computer sales have stabilized, while it forecast third-quarter revenue above Wall Street’s expectations.

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Profit growth for the second quarter is now estimated at 6.7 percent – excluding results from Citigroup Inc (C.N), which was hit by a big adjustment from a mortgage settlement – better than where they stood at the end of June.

In addition, 68 percent of S&P 500 companies so far are beating analysts’ profit expectations, above the 63 percent long-term average, according to Thomson Reuters data. A similarly high percentage of companies are beating revenue forecasts.

“Analysts may be underestimating the level of prospective improvement in the second quarter,” wrote Carmine Grigoli, chief investment strategist at Mizuho Securities in New York.

The latest profit estimate is up from a July 1 forecast of 6.2 percent, while revenue growth, now 3.2 percent, is on track to be the highest since the third quarter.

Still, it’s easy to overestimate the excitement. Many of the early reporting is by financial companies, not always the best barometer of Main Street activity.

The next two weeks, however, will see 60 percent of the S&P 500 release their results. That is key for investors looking for confirmation the anticipated economic rebound from the first quarter is more than just weather related.

Among the companies set to release figures are Apple Inc (AAPL.O), McDonald’s Corp (MCD.N), Coca-Cola Co (KO.N) and Caterpillar Inc (CAT.N). So far in July, six of 10 S&P sectors – particularly healthcare, consumer staples and energy – have shown upward revisions from June, according to Citigroup.

“The second quarter is going to be much stronger than the first for the reasons we all know, the weather. Investors are trying to decipher whether this improvement is a weather-related bounce or if there’s actually internal growth happening,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

The U.S. economy contracted at a 2.9 percent annual pace in the January-March period, its worst performance in five years.

Recent jobs and other economic data suggest the economy was growing briskly heading into the second half, with growth forecasts for the second quarter now topping a 3 percent annual pace. June’s payrolls report showed a surge in job growth and the jobless rate closing in on a six-year low.

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