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Global slowdown hits corporate profits

A ticker indicating points lost is seen on the floor of the New York Stock Exchange after the closing bell on October 23, 2012 in New York City. The Dow finished down 243.36 points to close at 13,102.53 following weak earnings reports.

Who says the economy's lousy? That seems to be Wall Street's overall take on corporate profits. Worries that earnings are coming in too soft in the latest quarter sank the Dow Jones Industrial Average by 243 points today.

It's not just the familiar bellwethers that are sending ominous signals. A company called Illinois Tool Works is a case in point: While it may not be a household name, ITW operates more than 800 different businesses -- everything from welding and commercial kitchen equipment to car-care products.

The industrial conglomerate's profit picture this quarter was also diverse. The company reported today that it was challenged by "persistently weaker" earnings in both Europe and Asia. At the same time, North America -- led by the U.S. -- continues to produce profits that have grown reliably in the three to four percent range. So despite slowing international demand, investor relations chief John Brooklier says ITW's overall profits rose by 3.4 percent.

Economist Joel Naroff says ITW illustrates the give-and-take that U.S. companies and American workers are coping with right now. "The U.S. economy may be getting better, we may be selling more here, but that doesn't necessarily turn into more jobs in the U.S.," Naroff says. The weakening economy abroad means "something has to give," Naroff explains -- namely, employment.

Illinois Tool Works may be benefiting, in fact, because its customers are under pressure to protect their profits. Acting CEO Scott Santi says companies are spending more on equipment, "looking to make investments in new capabilities that help drive better productivity, better performance for them."

Naroff says that's why Wall Street is worried. The U.S. economy may be growing for now, but the slowdown abroad threatens to throttle that back. "There's no way that firms are going to be able to hire under those circumstances," he says.

Already, there are signs it might get worse: DuPont today joined several other big companies announcing a new round of job cuts. The 1,500 layoffs total roughly 2 percent of the company's global headcount.   

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.

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