The economy, helped by a modest rise in consumer spending, is expected to grow about 2.5 percent this year, up from a sluggish 1.7 percent in 2011.
But in 2010 and 2011, the economy stalled after getting off to a strong start. And a string of disappointing economic reports this month is raising fears of another midyear slowdown in growth.
"The economy is gradually getting better," says Josh Feinman, chief global economist at the investment firm DB Advisors, part of the Deutsch Bank Group. "But it's kind of a stop-go pattern. It's somewhat frustrating, somewhat maddening." He doesn't see "a whole lot of linkage" between corporate earnings and the economy's performance.
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WHAT ABOUT PROFITS FOR THE REST OF THE YEAR?
If analysts expected little this past quarter, they're not much more optimistic for the current quarter, either. They expect profits to grow just 2 percent for the three months that end June 30. Then they're expected to rise nearly 6 percent in the third quarter, followed by an impressive 16 percent in the last three months of the year.
Some Wall Street pros aren't buying it.
"It's loaded into the back half — flat and then a big jump," says Brian Lazorishak, portfolio manager at Chase Investment Counsel of Charlottesville, Va. "I don't think it's going to play out that way."
David Kostin, chief equity strategist at Goldman Sachs, is equally dour. He points out that the profit margins, or how much profit companies get out of each dollar of sales, are starting to flatten, as they usually do in a recovery before dropping fast.
The pattern is intuitive: Companies reach a point where they can't squeeze any more additional work out of their staffs, and other costs start rising, too.
What's unusual is that Wall Street analysts expect those margins to stop flattening, then hit a new peak of $9 for every $100 in sales by the fourth quarter. In the late 1990s, Kostin says, margins rose after stalling. But that was the only time in the past 40 years.
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