Their house prices are wobbling and debt is soaring. But Americans are eating hamburgers, purchasing plane tickets and buying iPods in greater numbers than ever.
Strong corporate earnings in the US this week have eased fears of a ”hard landing” for the economy as the public shows little evidence of pain from slowing growth.
McDonald’s reported a 15% rise in third-quarter profits on Thursday to $843-million, fuelled by better coffee, chicken snack wraps, its ”I’m lovin’ it” marketing campaign and an effort to encourage more off-peak snack sales.
The figures, which were predicted by the fast-food chain last week, are a pay-off from its recovery strategy. Jim Skinner, chief executive, said: ”These results validate the strength of our customer-centric Plan to Win and the power of growing by being better, not just bigger.”
There were similarly strong numbers from Continental Airlines, which added extra seats and enjoyed a 17% rise in operating revenue to $3,52-billion.
Continental’s positive news came a day after the world’s biggest carrier, American Airlines, returned to the black with quarterly earnings of $15-million, compared with a $153-million loss a year ago.
More US companies are beating analysts’ expectations than falling short of forecasts. The consistent strength of earnings has helped push the Dow Jones industrial average through the 12 000 mark this week. The wider Standard & Poor’s 500 has also been heading upwards — its stocks are trading at an average multiple of 17,5 times earnings, compared to a long-term historic average of 15,7.
Frederic Dickson, head of retail research at the brokerage DA Davidson & Co, said: ”What we’re seeing is a very strong global economy driving expectations. We’ve got some good momentum going, driven by some good-quality numbers.”
Apple’s shares soared by 6% in early trading on Thursday after results late on Wednesday that underlined the remarkable success of its portable music players. Sales of iPods soared 35% to 8,73-million in the fourth quarter and a good back-to-school season pushed volumes of iMac computers up by 30% to 1,61-million.
Analysts said the iPod was cementing its position as a ”must have” for people aged up to 30. Apple’s revenue for the year to September reached $19,3-billion, compared with last year’s record figure of $13,9-billion.
Gene Munster, an analyst with Piper Jaffray, said Apple’s formula was working, with the iPod’s popularity reviving interest in the company’s other products: ”It all came down to the Mac numbers and they absolutely knocked the cover off the ball.”
Others beating expectations this week include the retailer Office Depot, the package delivery firm UPS and the healthcare multinational Johnson & Johnson.
Pfizer, the world’s biggest pharmaceuticals company, also surprised investors by beating expectations with sales of Lipitor, its key anti-cholesterol drug, rising strongly. The company reported net income of $3,36-billion but said it expected earnings to be flat for the year with no pick-up in growth before 2009.
The resilience of US consumers comes against a backdrop of concern about slowing growth that prompted the Federal Reserve to freeze interest rates in August after two years of constant monthly hikes. Among the indicators of sluggishness is weakness in the housing market. In San Francisco, one of the bellwethers of US real estate, house prices have begun to fall after four years of increases. DataQuick, an information service, reported this week that the median price for a Bay Area property slipped 0,8% to $611 000 in September.
Falling oil prices have helped to reassure consumers — the cost of refuelling a car dropped by more than 13% last month, providing relief to retailers who were worried that pricey petrol was deterring trips to the shops.
There are mixed signals, however, from the world’s biggest drinks company, Coca-Cola. It pleased the market on Thursday with a 14% jump in third-quarter profits to $1,46-billion, selling 5% more than a year ago. But this strength was largely outside the US. The company, which makes products including Dasani water, Powerade and Oasis fruit drinks, said sales were strong in emerging markets such as Brazil, eastern Europe, Russia and Central Africa. But volumes actually dropped by 1% in the US.
Coke’s chief executive, Neville Isdell, said that he was disappointed with sales in the US and Japan. ”We have started the recovery in Japan,” he said, ”and are addressing the softness in North America.” – Guardian Unlimited Â