Investors and the general public may be skeptical, but few CEOs are doubting that the U.S. economy is firmly in recovery mode. That's a clear conclusion from the first official week of earnings season, when investors get to hear chief executives and chief financial officers describe the business in their own words.
In earnings calls with analysts, CEOs, gloomy for so long, sound increasingly optimistic. "It's a bit surprising to hear the CEOs so upbeat," says William Richardson, president of Rutherford Investment Management.
"A year ago at this time, the industry was in the midst of a sharp correction, with many expecting it to continue for an extended period," Intel (INTC) Chief Executive Paul S. Otellini told analysts on Apr. 13. "Now, a year later," he added, "the industry is nearly fully recovered."
Investors listen to CEOs' predictions because they can know more about their own industries than any economist reading government reports. CEOs "are in the trenches," Rutherford says.
Some industries, such as finance and transportation, are closely watched, because they are so connected to the latest trends in the broader economy.
Michael J. Ward, chairman and chief executive of rail giant CSX Corp. (CSX), told analysts on Apr. 14 that his results showed "the industrial economy continues to gain momentum." He added: "We believe the recovery is sustainable."
Meanwhile, J. Kirk Thompson, chief executive of trucking company J.B. Hunt Transport Services (JBHT), sounded more cautious on Apr. 14. "While the pace of the broader macro economic recovery may be debatable, our current quarter results reflect a positive trend in the freight economy," he said in a statement.
The value to investors of executive commentary really "depends on the CEO," says independent market strategist Doug Peta. "Some CEOs are more credible than others."
Some executives have reputations for being "salesmen," putting the best spin on each quarter's results, says Mike O'Rourke, chief market strategist at BTIG. Others are "straight shooters."
Both Peta and O'Rourke cite JPMorgan Chase (JPM) Chairman and CEO Jamie Dimon as an executive with a reputation for being bluntly pessimistic when circumstances call for it. "Jamie Dimon has always had a history of being very realistic," O'Rourke says. "He doesn't commit to anything he can't deliver."
Thus, Dimon's comments on Apr. 14 stood out. "There is clear and broad-based improvement in economic factors in the United States and around the world," he said. While many worry about another downturn in the economy, Dimon told reporters the risk of a "double-dip" recession is "rapidly going away."
In the recession, many businesses slashed inventories. Economists have debated how much of the rebound can be attributed to simply restocking shelves, rather than strong demand from end users.
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