News / USA

Upbeat Earnings Reports Lift US Stocks

A trader at the New York Stock Exchange
A trader at the New York Stock Exchange

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U.S. retail sales fell half a percent in June providing more evidence that the U.S. economic recovery will slow down in the second half of the year.  But the weaker than expected consumer spending appeared to have little impact on Wall Street as investors welcomed better than expected profits by some U.S. companies.

Consumer spending fell for a second straight month in June, as Americans held back - due to high unemployment and continuing weakness in the U.S. housing market.  

But investors had other things to cheer about.

The Dow Jones Industrial Average has enjoyed its longest winning streak since April following robust earnings reports this week by aluminum maker Alcoa and railroad giant CSX.  

On Wednesday, the technology sector led the way after computer chip maker Intel reported $10.8 billion in revenue - its biggest quarterly income in more than a decade.

Intel's Chief Financial Officer Stacy Smith:

"What we are starting to see now is that companies are investing in technology, putting it in the hands of their employees because it makes those employees more productive and it reduces costs for the company," said Stacy Smith. "I think that is really what's driving the market right now."

Intel's record profit is helping to dispel fears that the U.S. economy is headed towards a double dip recession.  

Fighting its worst approval ratings since taking office, the Obama administration argued the economic recovery remains on track.

Vice President Joe Biden said the government's $800-billion stimulus has already saved or created about three million jobs.

"We are releasing a report today [July 14] that says the GDP is between 2.7 and 3.2 percent higher because of one thing - the Recovery Act," said Vice President Biden. "Put it another way, we would barely be growing at all were it not passed in the first place."

Despite an initial growth spurt from the stimulus, analysts say the U.S. economy is likely to grow more slowly in the second half of the year - not enough to reduce unemployment - now hovering near 10 percent.

But ABC News business analyst Mellody Hobson says better than expected profits this week will have a stimulative effect on the U.S. economy.

"They're either going to have to give it to shareholders in the form of dividends, hire more people, invest or spend, or buy companies," said Mellody Hobson. "All of that bodes well.  They can't hold the cash forever."

Despite encouraging earnings reports, U.S. stock prices edged lower late Wednesday after the Federal Reserve trimmed its growth forecast for the U.S. economy - citing weaker than expected consumer spending.

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