Recovery in U.S. corporate profits this year could be slowing after third-quarter earnings growth decreased and the federal government’s shutdown hindered trade and threatened to impede consumer spending.
Payroll taxes weighed on shoppers at retailers such as Wal-Mart Stores Inc., and industrial companies such as Caterpillar Inc. experienced dropping sales with limited options of cost-cutting.
The two-week-old shutdown and impasse over increasing the U.S. Treasury’s borrowing limit increased the risk of discontinuance of recovery whose positive sides include revivals in housing and for U.S. automakers.
“The rebound in earnings is getting postponed,” said Todd Lowenstein, a fund manager in Los Angeles for Highmark Capital Management Inc., which manages about $19 billion. “What’s going to drive earnings going forward is really top-line growth. For that, we need a lift in global economic activity.”
The partial closing of government administration that send into vacation as many as 800,000 federal workers has spread to the private sector, leaving thousands more employees idle at companies such as URS Corp. and Lockheed Martin Corp.
The impact was also felt across industries as it froze traffic at U.S. ports, projects at supercomputer maker Silicon Graphics International Corp., and delayed deliveries.
Economic indicators have given mostly negative signals. The Institute for Supply Management’s manufacturing index increased more than expected in August. However, concern over hiring and wages pushed the Conference Board’s consumer confidence index to its weakest since May.
U.S. retail sales growth may have stalled in September for the first time since October 2012, in a third straight monthly slowdown, according to economists’ median estimate.
In corporate world, Johnson & Johnson should pay about $1 billion because of rebates in the government’s Medicaid program for the poor, drug cost cuts in Medicare for the elderly and a 2.3% excise tax on medical device sales. Most companies will incur costs of $600 million to $900 million.
Exxon Mobil Corp. refining unit was reduced as U.S. prices of gasoline failed to keep pace with rising crude prices. Earnings at the world’s biggest energy company by market value may have dropped to $1.88 a share from $2.09 a year earlier, analysts say.
On the bright side of corporate news, several industrial and housing businesses exceeded expectations last quarter. Demand for Detroit autmakers have helped General Motors Co. per-share earnings rise for the first time this year on an increase of about 5% in revenue, according to analysts’ estimates. Home Depot, the home furniture retailer, took advantage of positive housing data as net income jumped 34%, estimated by analysts.
Delayed economic data and government reports have constrained investors to look for clues in corporate managers’ comments on business conditions.