Companies give poor earnings despite hopeful Greenspan

Matt Chock

The economic climate of the past few months shines through this week as companies report their second-quarter earnings.

It has become visible that in this economic downturn the vast spending from recent years has dropped dramatically.

In the midst of this, Federal Reserve Chairman Alan Greenspan spoke Tuesday on the U.S. economy and addressed the effects of recent monetary policy as well as the inflation rate.

The Fed has cut interest rates six times so far this year – totaling a 2.75 percent reduction. The current discount rate is 3.25 percent.

“You essentially get very complex differences in the way monetary policy plays out, but at the end of the day it does seem to be effective,” Greenspan told the Senate Banking Committee.

This can be seen in how the rate of inflation is now being controlled.

Greenspan said Tuesday, “All of our measures suggest fairly firmly that inflation is being contained.”

But Greenspan’s measures have not helped the stock market, as prices continue to recede in response to poor second-quarter earnings.

One of the largest reportings Tuesday was Lucent Technologies, which announced plans to cut another 20,000 jobs on top of the 25,000 already trimmed.

This accompanies Lucent’s reporting of a $1.2 billion loss after the past quarter.

The company has experienced losses for the past three quarters and a slight decreasing loss trend.

“The loss has only narrowed two percent which is relatively insignificant,” said Michael Ching of Merrill Lynch.

The market downturn has not missed Minnesota companies.

Many of the state’s largest companies have felt the recession, and are reporting earnings much lower than last year.

3M – dealing with the docile world and U.S. economies along with restructuring – has seen second quarter profits fall 4 percent.

These reports have forced 3M stock down several points in the past few days as traders responded to earnings.

St. Paul Companies announced second-quarter earnings Tuesday of $0.39 per share, compared to $0.63 per share the same quarter last year.

Northwest Airlines recently reported a second quarter loss due to decreased business travel spurred by the recession.

All over the nation, companies have either missed earnings or met previously reduced earnings expectations.

With the market continuing to decline and job cutbacks at companies such as Lucent, American spending ability is not increasing.

With a low buying power it might be difficult for companies to reach high earnings in the next quarter.

 

Matt Chock covers business topics and welcomes comments at [email protected]