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By Jason Stipp | 07-23-2010 08:00 AM

What Earnings Say About the Economy

Morningstar's Bob Johnson breaks down the economic implications of 2Q earnings trends, including the strength in industrials and consumer electronics, and less-than-stellar revenue growth.

Jason Stipp: I'm Jason Stipp for Morningstar. With earnings season well on its way, Morningstar's associate director of economic analysis Bob Johnson is digging through the numbers to try to pull out some implications for his economic forecast, and he is here to tell us a little bit about what he has found.

Thanks for joining me, Bob.

Bob Johnson: Good to be here.

Stipp: Bob, to start off, earnings season has seemed like it's been a little bit mix. There have been some high points and some low points so far. Can you give us a recap of what you have seen as far as the ups and the downs so far in earnings season?

Johnson: Sure. Just in terms of how it's flowed, we started out really strong with some great numbers from Intel that indicated a lot more corporate spending. We saw some decent numbers from Alcoa on the commodities side that gave people a little bit of relief there.

And then, we hit the banks at the end of last week, and the revenue growth wasn't so good. And IBM's numbers, the revenues again were a little bit light. And now this week, we've had some great numbers out of the manufacturing sector, especially today out of Caterpillar and likes, and now people are excited about the earnings again. So, we've kind of done a pendulum thing on earnings.

Stipp: Sure. So maybe some disparate data to kind of dig through and try to pull out some implications. So as you are looking company by company, what things have given you some optimism? What points, what highlights for the economy have you seen in some of the individual names. And since Caterpillar reported Thursday, let's start there.

Johnson: Yeah. I mean, I think, they had some really great numbers there, and they had some wonderful revenue growth. And probably more important than that, as I look at the economy, they talked about in the second half that they were going to step up production, because they said orders continue to run ahead of our shipments, and we are just going to have to finally bite the bullet and kick up production, and we plan to in the second half.

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