No, the Economy Didn't Crater in the First Quarter
The economy is stronger than headline numbers suggest.
Outside of some relatively unimportant housing data and continued downward adjustments to first-quarter real GDP growth forecasts, the market's main focus this week was on corporate earnings, which were generally positive and well received by the markets.
The tech sector was particularly strong, as both Apple (AAPL) and Intel (INTC) reported shockingly good results. The Intel results were particularly meaningful (and embarrassing), as many analysts and data services had sharply cut their PC shipment forecasts drastically just last week. Strength in emerging markets (that can't be easily estimated) and inventory restocking (from levels that were unsustainably low after a brisk holiday shopping season) help explain the disconnect between Intel's surprisingly strong results and analysts' much more dour forecasts. Intel is standing by its forecast of double-digit PC shipments for all of 2011.
Non-U.S. Operations Aiding Corporate Earnings Reports in a Big Way
In fact, Intel is the poster child for companies reporting surprisingly strong earnings results, even in the wake of a U.S. economy that "appears" to be weakening. In this week's video, I discuss why corporate earnings are doing better than the U.S. economy. Strong developing-market economies are part of the answer to that question. Unfortunately, some of those goods sold in emerging markets by U.S. companies are also produced overseas. That means that developing-markets sales don't necessarily translate into strong U.S. export statistics or boost U.S. employment. This week, the Wall Street Journal ran articles (click here and here) that suggested U.S. corporations have been ramping up both their employment and capital investments outside the U.S. for some time.
Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.