May 21, 2009 / 3:46 PM / in 10 years

U.S. economic mixed signals muddle corporate savants

CHICAGO (Reuters) - Have we bottomed yet?

Traders work on the floor of the New York Stock Exchange May 19, 2009. REUTERS/Shannon Stapleton

Nearly a year and half into the U.S. recession and coming up on nine months since the catalyzing and cataclysmic collapse of Lehman Brothers last September, just about everyone wants to know when things will start getting better.

The simple answer is it depends on which of America’s corporate giants you ask. Opinions differ greatly, reflecting the mixed signals given off by U.S. economic data in recent weeks.

For investors seeking tell-tale signs on when to climb back in to the market, their job has never been more tricky.

Some corporate chieftains have openly begun “calling a bottom” — jargon for saying that the economic cycle has hit its lowest point — or saying we are at least close to it.

“We are on the cusp of what will turn out to be a slow but sustainable economic recovery,” Bank of America Corp’s embattled Chief Executive Kenneth Lewis said at a conference in London on Wednesday. “There will continue to be a lot of pain ... but I think the worst is most likely behind us.

Lewis, whose bank bought Merrill Lynch earlier this year, was stripped of his post as chairman last month amid shareholder anger over that merger and its tumbling stock price. He projected modest U.S. and European economic growth in the second half of 2009.

Others, like conglomerate General Electric Co and No. 1 U.S. railroad Union Pacific Corp, were also hopeful, but took more of an optimistic middle-ground strategy.

While declining to say just when the economy will emerge from its current deep recession, GE’s CEO, Jeff Immelt, has emphasized that he does expect it to.

“There will be a future,” Immelt told an investor meeting on Tuesday. “There will be growth again someday.”

Immelt has pointed to thawing credit markets as the main cause for optimism.

Union Pacific CEO Jim Young told investors on Wednesday that freight volumes appeared to have stabilized, but tempered that by saying the railroad was not planning on a recovery in 2009.

In contrast to these attempts at good cheer, executives at other companies — like PC maker Hewlett-Packard Co and agricultural machinery maker Deere & Co — painted a gloomier picture.

HP gave a disappointing full-year revenue outlook this week and although CEO Mark Hurd said the company had seen pockets of improvement, he told Reuters: “We’re expecting roughly more of the same.

Deere lowered its full-year earnings forecast yet again on Wednesday, saying the outlook was “highly uncertain.

For analysts, coming up with meaning from all these opinions can be a delicate business.

“This is a reflection of an economy that is in search of a bottom,” said Diane Swonk, chief economist at Mesirow Financial. “There are some signs of a bottom, but we still don’t know where we’re going to land and how we’re going to get home again.”

‘EVERYONE WANTS A RALLY’

This is a far cry from earlier this year when earnings forecasts from publicly traded companies all but evaporated and cries of a second Great Depression were all the rage.

As the economy went into an apparent tailspin, CEOs became reluctant to give a number that could be used to punish them three months down the line.

Citing a “lack of visibility” and using the word “challenging” in almost every possible context, most simply stopped trying to give analysts figures that could become quickly irrelevant if the economy continued its rapid decline.

“For a time there was nothing but bad news,” said Peter Morici, a business professor at the University of Maryland. “Now the rate of decline appears to be slowing, as we’re getting some good news along with the bad.”

“We’ve had a lot of bad news in the past week which tells me we’re not there yet,” he added. “It’s possible that we’ll approach the bottom in third quarter, but anyone who calls a bottom is a fool.”

Poor housing starts — which fell to record lows in April — and weak consumer sales in the past week have tempered hopes that a recovery is on the horizon for the U.S. economy.

But the pace of decline appears to have eased, which has helped fuel a 30 percent increase in the Dow Jones industrial average since hitting a 12-month low on March 6.

Mesirow’s Swonk said that “mixed signals” on the U.S. economy account for the different takes on whether the world’s largest economy is poised for a rebound — plus the fact that different sectors and industries will be affected in their own way and at different times.

Swonk herself expects mild economic growth of 1.5 to 2 percent in the second half of the year.

The University of Maryland’s Morici said there may also be a psychological desire on the part of some executives to help fuel a further rally because of a common belief that it would help restart the economy.

“Everyone wants a rally,” he said. “And some people think if they jack up a rally, then we’ll see a recovery.”

“With all that hope out there right now, that also represents a great opportunity for CEOs to juice up their stocks.”

Reporting by Nick Carey; Editing by Patrick Fitzgibbons and Matthew Lewis

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