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Earnings To Take ANOTHER Hit
-- December 13, 2002
U.S. corporations have been struggling against a slumping economy and the bear market for about three years. But NOW, they're about to face an even tougher opponent -- deflation. In November, producer prices plunged 0.4% overall, and 0.3% if you exclude food and energy. Specifically, the wholesale prices of items such as cars, sporting goods, and computers fell sharply. And falling prices destroy pricing pressure -- businesses aren't able to raise the price of goods -- which then annihilates profit margins.
And, despite what you might think, deflation isn't a boon to consumer spending, either. That's because steadily falling prices will make consumers hold off on purchases -- hoping for even lower prices in the future.
We're already seeing inventory levels rising. Inventories at retailers, wholesalers, and manufacturers increased 0.2% in October -- to the highest levels in a year! Businesses are having trouble selling their existing inventories, and NOW they have less-expensive NEW goods approaching the market -- which means they will need to offer even DEEPER discounts and get LOWER OR NO profits on the older goods.
Bottom line: Despite Wall Street's forecasts to the contrary, corporate earnings just aren't going to make a big rebound next year!
U.S. Wholesale Prices Plunge