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Apr 27
2010

More hype about a bellwether's results

Posted by Ron F in unemployment, jobsjoblessnesshealth careGeneral ElectricGEemploymenteconomycost reductionconsumer spendingconstructionChinaCareers/ManagementbubblesAccounting

Ron F

By this point, press cheerleading for the economy is hardly newsworthy, and I'm not the first to notice the latest example.

But the down-is-up spin on Caterpillar's results cannot escape mention.  As the Business Insider notes, the Bloomberg story is tame by comparison with the ravings on CNBC yesterday.

Yes, the earth-moving equipment maker's bottom line results -- which like those of General Electric are widely considered a proxy for the global economy -- beat the Street's estimates by a few pennies once you strip out one-time costs related to the health-care bill, though why analysts didn't see those coming in light of all the pointless noisemaking over this issue is beyond me. And maybe, just maybe, those estimates weren't low-balled for a change.

But the company's sales were lousy by any stretch of the imagination, down 11 percent worldwide with Asia the only area showing improvement. And even that might be a reflection of a construction bubble in China that its officials are struggling to reduce.

Call that a global recovery?

Sure, Caterpilla raised its sales forecast for the year, and is starting to hire again, or at least plans to.

But none of that is reflected in Caterpillar' results. Instead, those better-than-expected profits included the savings from more than 30,000 layoffs.

No, I'm not short the stock nor am I a general perma-bear. In fact, I'm as eager as anyone to see real signs of a recovery. But that means significant  improvement in the jobs picture. And so far I haven't seen much, if any.

Unemployment is a lagging indicator? Maybe, maybe not. I'm not talking about tea leaves anyway. I'm talking about actual performance. In my book, temporary hiring for the Census doesn't count. And initial jobless claims have to fall not just from its peak during the recession but to a point where new hiring keeps up with growth in the labor force. That means claims down somewhere nearer to 350,000 or even 300,000, not the 456,000 we saw last week and a four-week moving average that's even higher. The sad fact is we haven't seen anything close to those lower numbers since the onset of the recession.

I know, I've said this way too many times before, but without job growth, we won't have a recovery built on on income as opposed to credit or a reduction in personal savings that were only recently and barely restored.

Another asset bubble just isn't the same thing as a recovery. Of course, there's the much ballyhooed "wealth effect." But can someone explain how that is different from using inflated asset prices as an ATM?

Oh, and did anyone notice that Caterpillar's sales fell short of expectations?

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