Earnings are then expected to increase beginning in the fourth quarter. Earnings visibility is particularly acute among technology stocks such as Hewlett-Packard, Juniper Networks, Nokia and Sun Microsystems, all of which have warned of lower second quarter sales and earnings results. Most of the stocks in our growth portfolios, however, escaped negative earnings warnings during the earnings pre-announcement season and should report continuing strong profits in July. A big problem with the U.S. economy continues to be a dramatic reduction in capital expenditures that has resulted from an overly cautious business community that is refusing to spend money like it has in the past. A significant turnaround in the economy will likely be postponed until business spending rebounds.
Warning signs are also evident with consumer spending that has recently buoyed the economy.
The latest retail sales figures were mixed, signaling that not all areas of the retailing industry are prospering. Fortunately, increases in consumer income should spur stronger consumer spending. Despite corporate layoffs, the unemployment rate dipped slightly, indicating laid off workers can find new jobs. The tax refund checks that will soon be mailed should further boost consumption in the upcoming months and contribute to economic growth. The bottom line is that the U.S. economy remains totally dependent on consumer spending until business spending increases.