US firms rake in massive Q2 profits amid unemployment, default fears

In July, corporate giants such as 3M, Caterpillar, Goodyear, Microsoft and Apple reported blockbuster results in the second quarter of 2011, though the stock market still slumped amid fears of an economic slowdown and a possible government default.

Of the companies in the S&P 500 list of large-cap firms which have reported their quarterly earnings to date, 72 percent have beaten analysts' forecasts, according to Standard & Poor's analyst Howard Silverblatt.

Moreover, if the current trend keeps up, the S&P 500 companies are poised to have their most profitable quarter ever, he said.

“Earnings are basically the only thing holding up the market at this point,” Silverblatt said. “They're amazing numbers.”

The prosperity of large corporations may seem surprising at a time when many indicators show profound weakness in the world's largest economy.

The U.S. unemployment rate stands at 9.2 percent, and the government last week said growth in the second quarter was a feeble 1.3 percent, far below economists' expectations.

But analysts say U.S. corporations are doing well in part because they slashed costs during the recession, laying off workers and reining in spending on plants and equipment, which boosted profit margins.

“They got lean and mean,” said Marc Pado, U.S. market strategist for Cantor Fitzgerald.

“Corporate America is very strong. They were preparing for a downward turn. Everybody was talking about a double-dip recession and they were bracing for that. They were holding on to cash, not hiring new workers and voiding themselves of inventory.”

The total cash held by U.S. non-financial corporations surged to US$1.2 trillion at the end of 2010, up 11.2 percent from a year earlier, Moody's Investors Service said in a report last week.

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