Strong corporate earnings from the United States' biggest companies fuelled a surge in stock markets and investor optimism this week, but a deep undercurrent of worry by executives is threatening to put a damper on the rebound.
Even with a sunnier profit outlook and heightened consumer confidence, those who sit in the corner offices say it is too early to deem the recession a distant memory. With job numbers still weak and the housing market unimproved, many executives told analysts on quarter-end conference calls that the best they can muster right now is "cautious optimism."
That doubt risks delaying the recovery even further. Already, progress on the jobless front has been described by the U.S. Federal Reserve Board as "disappointingly slow." Reluctance from big companies to commit to expansion will only make the process more painful.
George Buckley, chief executive officer of 3M Co., told analysts that, while a lot of leading indicators are mildly improved, he's not convinced the light on the horizon is what many think it is.
"I think we should all remain cautious. We need to be sure it's really a dawn and not a forest fire coming our way."
3M, which makes office, health care and industrial products, reported big sales jumps in some of its businesses, and beat analysts' 2010 profit expectations. But Mr. Buckley said most of the company's growth in 2011 - and that of the U.S. economy as a whole - will be led by emerging markets until the domestic jobs picture perks up. "I don't expect to see big improvement in the U.S. until employment takes a material turn for the better, and any gains here are likely to be export oriented," he said.
Tom Falk, CEO of personal care product maker Kimberly-Clark Corp., also couldn't force a smile. "While there are signs that some portions of the U.S. economy are recovering, unemployment levels remain high and we don't anticipate a big pickup in market growth in the near term," Mr. Falk said.
Even those selling big ticket items - such as airplanes - say they're expecting the mood for buying won't reach prerecession levels until some of the uncertainty disappears.
Scott Donnelly, CEO of aircraft manufacturer Textron , said customers appear ready to buy, and are having serious discussions about placing orders, but that was also the case a year ago and things didn't work out as expected.
"We saw that happening last spring as well and then … concern over the economy, when the euro crisis hit, kind of set people back a bit so they backed off [and]stayed away for the better part of nine months." Still, he added, "I'd say the mood is very positive with the sales folks; conversations with customers are very good."
Some firms that have reported strong results say they hope to be going gangbusters once the economy gets fully back on its feet. Royal Caribbean Cruises Ltd., for instance, unveiled sharply higher revenue and profit for 2010 on Thursday, but CEO Richard Fain declared: "Imagine how well we will do when the economy stops being such a drag on our sales and actually starts contributing."
It's no surprise that corporate executives are hesitant to unflinchingly declare that good times have returned, said Quincy Krosby, a market strategist with Prudential Financial Inc. "They remember all too well the soft patch that the U.S. found itself in last spring, [when they saw]a deterioration in economic fundamentals and the market."
With some European economies in turmoil, U.S. unemployment still high, and the domestic housing market looking more and more like its swirling into a "double-dip downturn," executive are understandably cautious, she said. Ms. Krosby doesn't see many firms committing to expansion until they see the U.S. economy growing at annual rates of at least 3.5 per cent to 4 per cent for a number of consecutive quarters.
At the moment, many executive are specifically concerned about higher commodity costs that could compromise margins in 2011, she said.
Starbucks Corp. CEO Howard Schultz acknowledged this week that the high price of commodities, along with the soft global economy, are a concern for the year ahead. Indeed, higher coffee bean prices, along with pricier sugar and cocoa, will cut 20 cents off the company's per-share profit in 2011, Starbucks predicted.
At McDonald's Corp., chief financial officer Pete Bensen told analysts the fast-food purveyor may have to raise some prices this year because of higher costs for chicken, wheat and cheese. But it is a balancing act, he noted, because drawing traffic into its stores and boosting market share has been the key to McDonald's success, and it doesn't want to interfere with that by jacking up prices across the board.