U.S. companies including Intel and GE are expected to report weak earnings performance due to weak global economy and the on-going standstill in the U.S. Congress on raising the debt ceiling.
Intel Corporation (NASDAQ:INTC), General Electric Company (NYSE:GE), and other companies in the country are expected to report weak earnings result due to the weak global economy and the standstill in the U.S. Congress on raising the debt ceiling.
Based on data compiled by Bloomberg, analysts estimated that Intel Corporation (NASDAQ:INTC) would report its highest quarterly earnings decline over the past 3 ½ year. The world’s largest semiconductor manufactures is expected to report a 29 percent decline in profit to $0.46 per share, after three consecutive quarters of weak performance as consumers favor buying tablets and smartphones instead of PCs.
On the other hand, General Electric Company (NYSE:GE) is expected to report its slowest earnings growth in three quarters. The jet engines and electrical generation equipment manufacturer is expected to post $0.43 earnings per share. Previously, analysts estimated that the company would deliver $0.47 earnings per share. Last month, GE CEO, Jeff Immelt told analysts, “There’s no doubt the fiscal uncertainty slowed activity in the fourth quarter. We still see good earnings growth in the fourth quarter across the industrial platforms.”
Meanwhile, analysts expect Microsoft Corporation (NASDAQ:MSFT) to report a 3 percent decline in net income to $6.42 billion. BGC Partners analyst, Colin Gillis believed that the company’s latest Windows 8 operating system and Surface, its first computer-tablet, failed to attract consumers and boost the declining PC market.
On Monday, President Barack Obama slammed Republican lawmakers who oppose increasing the country’s debt ceiling without further deficit reductions. The President described the position of the GOP irresponsible and absurd. He warned that failure to act responsibly on the issue would lead to another economic crisis. According to Obama, he will not negotiate on the issue on the debt ceiling, but he is willing to have a conversation to deficit reduction.
The deadlock on the debt ceiling is obviously affecting U.S. companies. A report from Bloomberg cited a comment from Stanley Nabi, chairman of Silvercrest Asset Management Group, that many companies slowed down their capital spending until they saw a clear decision on the fiscal cliff. According to Nabi, employment increases support the economy because more people are earning income and spending. He said, “We’ll have higher profits because we’re going to have higher revenue.”
Analysts expect companies to increase their earnings in the second quarter. They estimated an 8.2 percent increase due to improvement in employment and housing market as well as clarity from government spending.
President Obama recently signed a bill that prevented more than $600 billion in tax increases and automatic spending cuts, which was supposed to start on January 1. The bill suspended the spending cut for two months. It also saved most Americans from income tax increases, but allowed the wealthy to pay more taxes.
According to Diane Swon, chief economist at Mesirow Financial Holdings, politics is slowing down the economy. She said, “Politics have [sic] never played such a huge role in determining the fate of the U.S. economy. They’re really slowing things down and adding hesitation to an economy that’s already at sub-par growth.”
The Republicans in the Congress are forcing Pres. Obama to accept cuts in entitlement programs in exchange for their approval of raising the debt ceiling. The government needs to raise its debt ceiling to $16.4 trillion to avoid default.