Fears of second-half slowdown spook corporate America

BOSTON Wed Jul 27, 2011 2:11pm EDT

Pedestrians walk past the outside of the New York Stock Exchange in New York July 25, 2011. REUTERS/Lucas Jackson

Pedestrians walk past the outside of the New York Stock Exchange in New York July 25, 2011.

Credit: Reuters/Lucas Jackson

BOSTON (Reuters) - Corporate America's hopes for a second-half pickup in the U.S. economy dimmed on Wednesday, as companies from Emerson Electric Co (EMR.N) to Corning Inc (GLW.N) warned of weakening demand for everything from industrial equipment to televisions.

Their cautious words, coupled with weak earnings reports from Delta Air Lines Inc (DAL.N) and health insurer WellPoint Inc (WLP.N) spooked investors who are already on edge over the U.S. debt-ceiling standoff, sending the broad Standard & Poor's 500 index .SPX down more than 1 percent.

The words marked a change in tone for big companies, many of which had previously been calling for demand to pick up later in the year.

Executives warned that the long-awaited rebound in consumer spending is not materializing, as the nation's stubbornly high unemployment leaves many families with less disposable income.

Adding to their worries, the industrial demand that so far has helped prop up a sluggish economy, is starting to fade.

"We have seen a definite weakening of general business activity in June and July," Emerson said in a filing with the U.S. Securities and Exchange Commission.

The St. Louis-based maker of power equipment for corporate computer networks and factory automation gear noted that its order growth slowed in the three months ended in June: "U.S. and European economies have clearly slowed and entered a soft patch and it remains unclear if they will improve much in the second half of the calendar year."

The company's shares fell 7 percent, hitting their lowest point since September and pulled down fellow industrials including Rockwell Automation Inc (ROK.N) and General Electric Co (GE.N) .

"Emerson's management team has their finger on the pulse of the global economy pretty well," said Nomura analyst Shannon O'Callaghan. "Their upfront statement is sending a message about a broader slowdown."

Even companies that posted better-than-expected results, including Boeing Co (BA.N), did so largely on cost cutting, analysts said.

For an interactive earnings scorecard: r.reuters.com/dud72s

CONSUMERS HOLD OFF, OLD ADVERSARIES RETURN

Glassmaker Corning opened a window into consumer behavior when it lowered its demand forecast, saying that fewer consumers seemed ready to spend their money on high-end flat-panel televisions.

"There is a sense that the economies around the world are not growing as fast as people had originally hoped," said Chief Financial Officer Jim Flaws, on a day the company reported a 17.3 percent drop in quarterly profit.

"What you are seeing is the major TV brands like Sony, Samsung, LG all reducing their forecasts of what will be sold at retail," Flaws added. "It is not by huge amounts but it is by an amount that is causing us, and the rest of the supply chain, to say there is going to be less volume in the back half of the year."

Two of the U.S. economy's biggest structural weaknesses, the rising cost of energy and healthcare, also played a role in Wednesday's wave of worry.

No. 2 airline Delta said profit fell 57.6 percent, more than analysts had expected. The company blamed the drop on a run-up in fuel prices over the past year, which more than offset a rise in revenue. Its shares fell 5 percent to their lowest since November 2009.

"The challenge to the airlines right now is absorbing higher fuel costs," said Matthew Jacob, senior airlines analyst at ITG Investment Research.

WellPoint, the No. 2 U.S. health insurer by market value, said profit fell 3 percent. Its results suffered as more sick senior citizens in northern California enrolled in its Medicare plan, raising the company's costs after rivals pulled out of the region.

Even debt-ratings agency Moody's Corp (MCO.N), which reported a 56 percent rise in second-quarter profit, warned things are going to get tougher, as the European sovereign debt crisis and the risk of the United States losing its top-tier AAA credit rating scare off potential bond issuers.

"We expect more challenging debt issuance conditions in the U.S. and Europe in the second half of 2011 as compared to the first half of the year," CEO Raymond McDaniel said.

(Reporting by Scott Malone, additional reporting by Nick Zieminski, Liana Baker, David Henry and Lewis Krauskopf in New York, Karen Jacobs in Atlanta; editing by Gunna Dickson)

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