US consumers keep their spending binge on
New York, October 20:
Their house prices are wobbling and debt is soaring. But Americans are eating hamburgers, purchasing plane tickets and buying iPods in greater numbers than ever.
Strong corporate earnings in the US this week have eased fears of a “hard landing’’ for the economy as the public shows little evidence of pain from slowing growth.
McDonald’s reported a 15 per cent rise in third-quarter profits yesterday to $843m, fuelled by better coffee, chicken snack wraps, its “I’m lovin’ it’’ marketing campaign and an effort to encourage more off-peak snack sales.
The figures, which were predicted by the fast-food chain last week, are a pay-off from
its recovery strategy. Jim Skinner, chief executive, said, “These results validate the strength of our customer-centric Plan to Win and the power of growing by being better, not just bigger.’’
There were similarly strong numbers from Continental Airlines, which added extra seats and enjoyed a 17 per cent rise in operating revenue to $3.52bn.
Continental’s positive news came a day after the world’s biggest carrier, American Airlines, returned to the black with quarterly earnings of $15m, compared with a $153m loss a year ago.
More US companies are beating analysts’ expectations than falling short of forecasts. The consistent strength of earnings has helped push the Dow Jones industrial average through the 12,000 mark this week. The wider Standard & Poor’s 500 has also been heading upwards - its stocks are trading at an average multiple of 17.5 times earnings, compared to a long-term historic average of 15.7.
Frederic Dickson, head of retail research at the brokerage DA Davidson & Co, said, “What we’re seeing is a very strong global economy driving expectations. We’ve got some good momentum going, driven by some good-quality numbers.’’
Apple’s shares soared by 6 per cent in early trading yesterday after results late on Wednesday that underlined the remarkable success of its portable music players. Sales of iPods soared 35 per cent to 8.73m in the fourth quarter and a good back-to-school season pushed volumes of iMac computers up by 30 per cent to 1.61m. Analysts said the iPod was cementing its position as a “must have’’ for people aged up to 30.
Apple’s revenue for the year to September reached $19.3bn, compared with last year’s record figure of $13.9bn.
Gene Munster, an analyst with Piper Jaffray, said Apple’s formula was working, with the iPod’s popularity reviving interest in the company’s other products, “It all came down to the Mac numbers and they absolutely knocked the cover off the ball.’’
Others beating expectations this week include the retailer Office Depot, the package
delivery firm UPS and the healthcare multinational Johnson & Johnson.
Pfizer, the world’s biggest pharmaceuticals company, also surprised investors
by beating expectations with sales of Lipitor, its key anti-cholesterol drug, rising strongly.
The company reported net income of $3.36bn but said it expected earnings to be flat for the year with no pick-up in growth before 2009.
The resilience of US consumers comes against a backdrop of concern about slowing growth that prompted the Federal Reserve to freeze interest rates in August after two years of constant monthly hikes.Among the indicators of sluggishness is weakness in the housing market.