Against a background of falling earnings reports and layoffs, Wall Street found some encouragement yesterday in a couple of key indicators which show that the US economy still has plenty of fight left.
Aided by a rebound in activity at car manufacturers, US industrial production in March posted its first gain since September, the Federal Reserve said. Production rose 0.4 per cent in the month, defying analysts' expectations of a slight decline. In February, industrial output fell 0.4 per cent, the fifth monthly drop in a row. The US industrial sector has been in recession and contracted at an annual rate of 4.7 per cent for the first three months of the year.
At the same time, US consumer prices rose only 0.1 per cent in March, the Labor Department said. The move was in line with expectations and does not pose a threat of inflation.
The figures made more likely the prospect of a further rate cut in May by the Federal Reserve, whose main role is to combat inflation and a decline thereafter in the value of the strong dollar which is hurting the US economy by holding back the export sector.
These expectations factored into Wall Street activity and prevented an expected steep decline in stocks at the opening on the heels of bad news from Cisco Systems, analysts said.
Cisco, the world's biggest networking equipment company, warned after the close on Monday of a sharp shortfall in revenues and earnings, and said it was sacking 25 per cent of its workforce. This was a severe blow to the battered technology sector, but tech stocks staged a rebound in late morning trading yesterday as investors apparently decided that the corporate earnings picture could not get much worse.
Texas Instruments, which makes semiconductor products, is expected to fire at least 2,000 workers in response to falling demand for its semiconductor products in a slowing economy. At the close, however, Texas Instruments reported sales and earnings ahead of forecasts.
Another big loser yesterday was Eastman Kodak, the world's leading maker of photographic film, which yesterday reported first-quarter profits fell sharply due to the sluggish economy and said it would cut at least 3,000 jobs. The company expects to take a pre-tax charge of $375 million to $450 million, mostly in the second quarter.
US drug manufacturer Schering-Plough yesterday posted a 10 per cent decline in first-quarter earnings as sales of US drugs dropped amid plant disruptions.
The company, which employs about 1,000 people in Wicklow and Cork, suffered a major setback in mid-February when it said first-quarter earnings could drop by as much as 15 per cent as it tried to clear up manufacturing problems cited by the US Food and Drug Administration.
Some leading old economy companies fared better. Philip Morris, the world's largest tobacco company, reported higher first-quarter profits, boosted by the addition of Nabisco foods to its Kraft portfolio. Philip Morris said that on an underlying basis it earned $2.11 billion (€1.86 billion), up from a profit of $2.07 billion.
