The economy has taken some tough hits the past 18 months, and it became stagnant with little hope of short-term recovery when corporate responsibility was exposed. But this month marks a vitally important time as three events will shape the next six months.
This week, publicly owned companies will announce fourth-quarter earnings for 2002. After three lackluster quarters, investors are eager to see if October, November and December can boost the year's performance. This week's announcements are critical.
There has been growth in consumer ratios like consumer confidence and jobless rates the past few months. If fourth-quarter earnings are on target or better than expected, investors will take it as a sign of overall economic growth and the coming out of the recession.
Less than two weeks after earning reports, President Bush will give the State of the Union Address. On Jan. 28, the President will reveal his plans for the next year. This will undoubtedly include war and his new economic plan. The deadline for war with Iraq is looming closer as Bush transports thousands of troops to the Middle East.
After North Korea blamed the United States for all negative tensions last week, don't be surprised to see more troops headed to Asia. Americans are looking to see how many wars we will be fighting and what takes importance. North Korea asked UN inspectors to leave so nuclear testing can resume.
South Korea and China have been meeting with United States officials to discuss motives and possibilities behind North Korea's blatant disregard of a 1994 agreement to cease uranium programs. Investors will be listening carefully for Bush's war timeline because war is expensive and it kicks money back into the economy.
Finally, investors are waiting for final reactions to President Bush's $670 billion economic plan unveiled last week. It will no doubt be a top priority in the State of the Union. Reactions have been mixed. Democrats say the plan only helps the rich, but republicans deny the claims.
The 10-year initiative alleviates the double taxing. Corporations are taxed on profits. Most publicly-held companies pay a percentage of those profits to stockholders in dividends. Stockholders are then taxed on collected dividends. Dividends are just payments to investors; it's a goodwill gesture and an incentive to stockholders.
Essentially, profit is taxed twice: once through the corporation and once through the stockholders.
By not taxing them, Bush is hoping stockholders will re-invest dividends by buying more stock. Putting money back into circulation helps boost investor confidence and value of stocks in the market.
With the recent economic slow down, there's been a shift from short-term vision to long-term performance. Back in 1999, when the economy was at the height of the technology push, no one cared that Yahoo! had not turned a profit. People bought shares of Yahoo! for more than $200 because the short-term outlook was positive in terms of market share and brand recognition.
The idea of immediate value has shifted. Recently, Coca-Cola announced it would no longer leak estimated earnings because the company's vision is pushing to long-term performance.
The next two weeks will determine much of this year's economic estimates. The stock market system is very volatile. It changes with the weather. Our system is partially based on hope - educated hope. Fourth-quarter earnings, the State of the Union, and Bush's economic plan will determine what hope Americans have of a recovering economy.
Write to Liz at eabaker@bsu.edu
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