Vice-Like Squeeze On Corporate Earnings
-- February 20, 2003
Rising producer prices are trapping corporate earnings between a rock and a hard place. It's costing companies more to produce the goods they're trying to sell, but the problem is, few are buying. Therefore, companies aren't able to pass along the price hike to consumers.
Consumer spending is already on shaky ground, and confidence is at its lowest levels in nearly a decade. And now, consumers are coping with skyrocketing gas prices and high home heating costs. So, a higher proportion of consumers' disposable income is now going toward these necessities. That's putting a damper on already-reduced buying power that's already gone through the ringer. And those who ARE buying are choosing cheap imports from China -- $125.2 billion worth!
Meanwhile, U.S. businesses are running into a brick wall trying to export their goods. Economies across the globe are falling apart. Japan has been on a downward spiral for more than 12 years. Germany and much of the rest of Europe is in a slump. No wonder the U.S. just reported a record trade deficit!
With little domestic demand and less global demand, U.S. companies are in no position to raise prices. Thus, they'll pay for the added producer costs in the form of fewer profits. And that will mean an even bigger blow to stock prices.
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