Weaker Earnings Reports By Ford And Apple Indicate Europe's Woes Are Spilling Over Into The Global Economy

Thursday, July 26, 2012 08:22
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Weaker Earnings Reports By Ford And Apple Indicate Europe's Woes Are Spilling Over Into The Global Economy

Tags: earnings | Economic Outlook | European crisis | world economy

The European crisis is seeping into companies’ earnings reports. A slowdown in spending by European consumers is blamed for weaker earnings reported by Ford, Apple, and a host of other multi-national companies.

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Unemployment in Europe is high and consumers are reining in purchases across the spectrum, on both large and small items. The Eurozone countries make up the largest economy in the world and one-fifth of all US exports are to Europe.
 
The downturn is a huge market for China, as well. So far this earnings season, 60% of 195 S&P companies have missed their second-quarter earnings estimates.
 
Treasury secretary Timothy Geithner points to Europe as the major concern for US economic growth. He also noted the European recession is spilling over into the global economic landscape and tightening financial conditions.
 
The push for austerity is clamping down spending. That puts a drag on the economy and, in turn, leads to further austerity. The cyclical effect becomes a downward spiral. Many companies are still projecting better growth for the second half of 2012 and on into 2013 but the projections are being revised downward overall. Growth estimates for S&P 500 companies were recently revised to 5% from 10%.
 
The continuing weakness in Europe and the inability of Europe’s economic leaders to sufficiently address long-term debt issues is causing even strong companies to put forecasts on watch status. Although the housing and manufacturing sectors in the US are strengthening, even they are not strong enough to carry the economy by themselves.
 
Their current strength can also be tempered if Europe does not act soon and in a meaningful way to address its structural problems.

 

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