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Economic Movement and Your Business

on March 1, 2011by DoMyLLCin Finance

If we were to view the economic movement as a waterway, we would all agree it is mired.

I have a pond at home that goes under our driveway in two places. On one end is a retention pool that must be filled before it can flow into the pond, and on the other there’s an overflow pipe under the gravel. If the water level reaches the mouth of this pipe it’s automatically drained out. This creates a stream running over a set of strategically placed rocks, creating the intended aesthetic effects of a waterfall. During the torrential spring rains, the pervasive sound of the waterfall is comforting. In late summer, however, the pond shrinks into a mire of green goo that resembles mucus. During these dry times, I am constantly reminded of the need for moving water.

Increase In Quarterly Earnings

Over the past three years there has been very little good news worth sharing that included the phrases “increase in quarterly earnings” and “positive outlook”. The rain of activity happens in light showers and seems to evaporate just as quickly. There are times when we see a torrent, and in that downpour we see the water start moving again. News today would give hope for such movement, as one corporate giant reported an outlook that is beyond positive.

General Electric today reported a 77% increase in quarterly earnings, made through the GE Capital branch of the company and through the improved sales of their industrial units. The news comes with an improved stock market earning at the start of the trading day, with a +23.89 (0.13%) increase at the day’s opening. No doubt the corporate good news had an effect on investor confidence. Additionally, Apple Inc. and Qualcomm showed positive gains after releasing earnings reports similar to those of GE.

This comes as welcome change given the consistently bad economic news, namely that the U.S. Labor Department shows very little change in the 400,000 jobless claims reported and that economic movement is still extremely low. Apparently, it is assumed by investors that these issues will take care of themselves if there is enough new activity within the market. What is not apparent is if the new earnings are sustainable.

Looking deeper into the main story, we see the majority of the earnings came from the GE Capital arm of the company, which is the very arm GE is trying to shrink. Why? GE Capital is the investment wing, and was therefore hit hardest by the recession, a blow that reverberated throughout the company in the form of a financial drought. The fluctuations in this wing are high and generally unstable – as is seen conversely with the unexpected earnings – making the long-term planning with funds generated from GE Capital hard to forecast, and almost impossible to budget. The industrial side however, shows slow growth with more stability. This, in the end, is more attractive than the short-term, high gains generated from the investment wing. The challenge for GE is to time the shift while pacing the market accurately, in that they need to stem the flow from the financial to the industrial wing at market pace, taking advantage of everything they can with GE Capital while it is their primary income earner.

Pronounced theories aside, these types of reports mark the positive flow of new business into a stagnant economy. The business that flows from the private sector has always shown itself to be the most effective within all pools of economic movement. Like my pond, the benefit of one systematically benefits another, if (and only if) that person or entity is willing to turn the overflow into a pleasant stream. Hopefully, the more we hear stories like the ones reported today, the more the water of the economy will move, whether by shower or torrent.

At this stage, however, I don’t think anyone is too picky.

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