A look at corporate earnings & the Fed

Marketplace Staff Oct 13, 2010
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A look at corporate earnings & the Fed

Marketplace Staff Oct 13, 2010
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TEXT OF INTERVIEW

BILL RADKE: This morning, JPMorgan Chase became the latest U.S. corporation to announce better-than-expected quarterly profits. What, if anything, does that mean for you and me? Let’s say good morning to our Wednesday economist Richard DeKaser of Woodley Park Research, joining us live from Washington, D.C. Good morning, Richard.

RICHARD DEKASER: Good morning.

RADKE: So one reason stocks are up is because corporations are making money. But another is the Federal Reserve says it’s looking at a crummy economy that it’s ready to help. So Richard, where do these two worlds come together?

DEKASER: First of all it’s important to recognize that corporate earnings are leading indicator. They tend to do better before the rest of the economy and they tend to deteriorate before the rest of the economy. So seeing earnings improve is encouraging and it’s a necessary condition for the expansion to remain on track and improve, but it’s not sufficient. Companies have been stashing a lot of these profits aside, they’ve been holding record levels of cash. What we really want to see is that translated into investment and hiring, and that has still not happened in a big way.

RADKE: Yeah, so now bringing these worlds together, I mentioned the Federal Reserve’s outlook. But that statement from the Federal Reserve about how it’s ready to print money — that’s from a meeting back in September. Do the latest happy corporate earnings reports change the Fed’s calculation?

DEKASER: I don’t think so. And the reason I say that is, as I mentioned previously, rising profits are a necessary precondition for a sustained expansion, but it’s not sufficient. We need to see these funds put to use. That has not been compellingly evident. And just to get a quarter of better earnings or even strong earnings from a couple of important companies is not sufficient. They need to see those broader measures of economic improvement, more hiring in particular, and that’s not at this point surely in hand.

RADKE: Yeah, that’s for sure. Thanks for laying this out for us. Richard DeKaser, Woodley Park Research, we appreciate it.

DEKASER: My pleasure.

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