JEREMY HOBSON: OK let’s get to corporate earnings. ‘Tis the season when companies tell us how they did last quarter and what they’re expecting going forward. Lots of new numbers this morning. From General Electric, United Continental McDonalds and Apple, which reported late yesterday.
Diane Swonk is off this week. We’re joined instead by her colleague at Mesirow Financial. Adolfo Laurenti, he’s the deputy chief economist there. And he’s with us live from Chicago. Good morning.
ADOLFO LAURENTI: Good morning.
HOBSON: Let’s start, Adolfo, with the tech sector — because that really has been the big story of this earnings season so far. Apple says it’s profits more than doubled last quarter.
LAURENTI: Yes, they have two factors going on in the technology sector. So first of all, consumers are willing to spend. It’s not true for many other goods, but with the new mobile telephone, the tablets, the e-bookers readers on the market, consumer spending seems to be relatively more solid in this field than other areas. And then there is this story of business spending. Companies have been delaying investments for quite some time, but now it’s the time to spend for hardware, for software, and this is reflecting through the market and through positive earnings — the results that we are seeing in these days.
HOBSON: OK on the other hand — we’ve got airlines that are not doing so well. Even Southwest airlines reported a 55 percent drop in profit. United Continental is reporting a loss in the last quarter.
LAURENTI: Costs are really rising. The energy prices that are haunting all of us are really bad for airlines because the jet fuel costs almost one-third of their overall cost. So it’s very difficult for them to pass these price increases because it’s a very competitive field. One solution might be to cut on capacity, so I’m afraid we are going to be cramped on those economy seats during the summer. But it’s very very difficult to make, you know, the numbers look good right now. Costs are up, prices cannot go up, they are squeezed.
HOBSON: OK and finally — and quickly — what about McDonalds? They saw a 10 percent rise in profit. What do you make of that?
LAURENTI: Well, in part it is a story of growth abroad, but there is also what we economists call the substitution effect. Many people cannot go and cook for themselves because maybe they are working two jobs, maybe they are traveling, so they need to go and eat out. And these fast food chains really offers the cheap alternative to local restaurants. You can still have your meal, you save some money. And that’s a good business for fast food chains.
HOBSON: Adolfo Laurenti, deputy chief economist with Mesirow Financial, thanks so much.
LAURENTI: Thank you. Buh-bye.
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