Covering the recovering: It’s a messy business

By Andrew Leckey on Apr 08, 2010 in Basics, Economy, Networking

Great expectations. That’s what typically fuels business coverage when emerging from a recession.

Spring has sprung. Happy days are here again. The darkness is followed by the dawn. Stock prices, earnings forecasts and the tone of news reports increasingly take on an upbeat tone. Everything and anything can be construed as a springboard or a bellwether.
Andrew Leckey
Young people buy more clothes. The most recent American Eagle Outfitters quarterly earnings rose 81 percent compared to the year-earlier quarter.

The world awakens to business. FedEx Corp. earnings more than doubled in its recent quarter, taken as indication that the global economic recovery is expanding, and it also increased its prediction for the current fiscal year.

People spend more on food. Domino’s Pizza profit more than doubled to $23.6 million in the recent quarter on higher sales, better margins and lower interest expenses.

Stock prices factor in the expected increases well ahead of time.

But journalists must be careful, for rarely does everything improve as planned.

For example, American Eagle Outfitters also closed its money-losing Martin+Osa outlets due to poor sales. Fedex chairman, president and CEO Frederick Smith cautioned that housing and bank credit are still major problems for business.

Recovery is often a messy business. More than 200 bank failures since 2008 and counting is not a pleasant reality. The deep fiscal problems of Greece, California or Toledo, Ohio, won’t be solved overnight. There are also complications having nothing directly to do with the economy.

For example, AT&T announced a $1 billion one-time charge against quarterly earnings because the federal health-care changes removed the deductibility of the subsidy for retiree prescription-drug benefits. John Deere said it would take a $150 million charge, Caterpillar $100 million and many others joined the chorus. They’d like a little sympathy please.

Here’s what to keep in mind when covering an expected economic resurgence:

Remember that we’re coming off the low base numbers from the economic downturn. Percentage increases in stock prices, sales and earnings must be taken with a grain of salt. They often look good because they’d been so bad.

Forecasts by companies can change overnight. Sure, it hurts their Wall Street image, but if something doesn’t respond as hoped it just takes a few words to say that prospects were overestimated. Future sales and earnings are just that: Projections.

The media in general dislikes murkiness. So are we doing better or not? The recent difficult economic period is like a calliope, with different parts playing their tune at different times. Employment or distressed home values don’t revive overnight.

Signs in the economy or from companies can be overblown. Each nugget of information becomes a headline or story tease that is considered today and forgotten tomorrow. The fact that we now operate in a world economy provides even more data that can distort the overall picture. Bad news can come from anywhere at any time, some of it more political than economic in nature.

We don’t all live in the same region, state or town. There are dramatic differences between areas that make it important to know everything you can about your coverage area. While some parts of the U.S. economy were in a swoon, others were on their way to recovery. In addition, one town can be prospering while another down the road is hurting because of the nature of its industries. We live in a multifaceted economic world.

One quarter’s numbers—whether in the economy or companies—mean something but not everything. It is like an inning of a baseball game. There are fits and starts on the road to recovery, sometimes there is a double-dip recession and sometimes there are stunning surprises.

Forecasters never have a pure track record. Some do better than others in some types of economies, some pick the best stocks in certain market periods and some get quoted simply because they always have been quoted. Too often journalists simply run with the thoughts of whatever prognosticator answers their call. If you’re a so-called expert and a journalist asks you for a quote, you have to provide one.

Our memories are too short. Bubbles, bursting bubbles, downturns and upturns are quickly forgotten as soon as they’re over. There is talk of new paradigms and unusual circumstances. But the fact remains that companies must still make money to pay their shareholders and employees while building their businesses. There are also clear indications that history does repeat itself.

Low interest rates and increasing signs of recovery typically lead to growth in earnings for companies and, at some point, improved job prospects. But just as it was the journalist’s responsibility not to get caught up in the hype of boom times, it is important not to get bowled over by positive signs coming out of recession either.

The past decade was loaded with headlines, teases and video reports that business journalists wish they could take back. All of business journalism has been judged harshly as a result. Let’s face the coming decade with both feet on the ground and the realization that we are accountable for what’s written before, during and after all economic periods.

About the Author

Andrew Leckey was named president of the Reynolds Center and became the Reynolds Chair in Business Journalism in 2009. He was the first director of the center at its launch in 2003. Andrew is a long-time syndicated investment columnist for the Chicago Tribune, a former CNBC anchor and the author or editor of 10 financial books. He received the National Association of Investors Corporation’s “Distinguished Award in Investment Education” and was the first director of the Bloomberg Business Journalism Program at the University of California, Berkeley.