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It wasn't all
that long ago that the bulls were talking about a strengthening U.S. economy
"decoupling" from weakening economies elsewhere, allowing companies
based here to continue to thrive.
Well, like so
much of the nonsense that Wall Street spews forth on a regular basis, this
particular notion has proved, once again, to be wide of the mark, as the New York Times reveals in "Europe's
Fade Becomes Drag on Sales for U.S. Companies":
Just a few
months ago, market watchers were optimistic that the American economy had
decoupled from Europe's problems, able to grow even as the Continent
faltered.
While most of
the focus has been on oppressive debt and debilitated banks in the euro zone,
concerns are shifting to the drag that recession in Europe is exerting on the
global economy. Over the weekend, President Obama reflected the growing
anxiety by saying that Europe's economy is "starting to cast a shadow on
our own as well" and that it was partly to blame for the recent slowdown
in job creation in the United States.
The economy of
the European Union, which holds the 17 nations that use the euro currency and
10 others, is a larger economic unit than the United States or China.
Corporate
profits have been one of the brightest spots in the American economy, but the
decline in European revenues is part of the reason that analysts have
recently ratcheted down their expectations for profit growth in the second
quarter. In the case of technology companies, analysts say they believe that
about a third of all revenue comes from Europe.
Through the
first few months of this year, when technology stocks were leading markets
up, the networking giant Cisco was sharing in the good times, ready to leave
behind recent difficulties tied to bad acquisitions.
Last month,
though, Cisco's chief executive acknowledged that the company's economic
outlook in Europe had "gotten worse," helping to push the company's
shares down 11 percent in one day.
A. M. Sacconaghi, a technology analyst at Sanford C. Bernstein
& Company, said, "As push has come to shove, we have started to see
a real shift in outlook."
Given that one
widely followed gauge of economic activity is wallowing in contraction
territory in major economic regions around the world, as shown below, it
probably won't be long before another Wall Street fantasy becomes a red ink
nightmare.
Michael J. Panzner
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