No happy ending as US returns to bad old days

LAST time the United States saw five quarters of negative earnings, Hollywood's first big disaster film - Airport - topped the box office, Apollo astronauts circled the moon, the first troops were withdrawing from Vietnam and Richard Nixon was President.

Not since the fourth quarter of 1969 and throughout 1970 has the US suffered five quarters of declining earnings but, with companies struggling to recover after the 11 September terrorist attacks and with US consumers in retreat, Wall Street appears destined to revisit that level of torpor. The down cycle started in the first quarter of this year and analysts predict it will not end until the second quarter of next year - at the earliest.

With 80% of the third-quarter profit reporting season over, analysts are lowering their forward estimates. Third-quarter earnings slid 19.3% and will probably finish more than 20% off, according to First Call, the Boston-based profits tracking company.

The hoped-for recovery in the fourth quarter is no longer even a remote possibility and it will take a miracle to see positive earnings growth in the first quarter of 2002. More than 280 US firms have warned of continued weakness ahead, which is troublesome because the comparisons with a year ago are easier as it was then that the economy began to slow.

'If we seasonally adjusted profits, the fourth quarter and first quarters would be even worse because, even though they might not be down quite as much percentage wise as the third quarter, they are up against much easier comparisons from a year ago,' says First Call's Ken Perkins. 'The pace of warnings hasn't abated.'

The hi-tech sector is weighing heaviest on the Standard & Poor's 500. Earnings for tech companies that make up more than 15% of the S&P index are down 69% in the third quarter and are expected to drop 62% in the fourth and 29% in the first three months of 2002.

The only firms to beat expectations for the third quarter were utilities, up 19%, an anomaly eerily reminiscent of early 1970 when Nixon, in his inaugural address, said: 'We find ourselves rich in goods but ragged in spirit, reaching with magnificent precision for the moon, but falling into raucous discord on Earth.'

Wall Street would be happy for an old-fashioned happy ending to its earnings slump. Instead, analysts believe, it is likely to get a repeat of 1970, complete with war and quarter after quarter of weak profits.