Finally, Some Top-line Growth in the Real Economy

Economic RecoveryFinally there’s some good news on the corporate revenue front. A lot of big companies reported solid earnings growth in the second quarter, but revenues haven’t been inspirational. The Dow Chemical Company (NYSE/DOW) just reported very solid numbers and this is a good sign for the industrial economy.

The company reported that its revenues in the second quarter this year grew to $13.6 billion, representing a solid 26% increase over the same quarter last year. Dow Chemical experienced a seven-percent increase in sales volume and a 19% increase in prices. This combination of sales and price growth is a good indicator for the industrial economy.

Dow Chemical experienced double-digit sales gains in all geographic areas (31% in North America), and the company expects a sustained global economic recovery led by Asia.

The company’s numbers actually fell short of consensus estimates just slightly. But, in this market, who cares? A 26% gain in sales for the largest chemical company in the U.S. is big news as far as I’m concerned.

We are experiencing an uneven economic recovery and not all industries are participating. It won’t be until the housing sector really stabilizes and all the foreclosures are worked through the system that the economy will be on solid footing for growth. The good news is that monetary policy is still onside and that interest rates remain low.

It would seem that investor sentiment has had a change for the better recently. While investors have been more willing to forgive less-than-stellar economic news, we can’t fool ourselves about the trading action. The broader market rallied in June, and then pulled back sharply. Also keep in mind that trading volume isn’t very robust. I don’t know where sentiment is going to take the current equity market but I’ve learned never to cry wolf.

A company like Dow Chemical is a benchmark stock to follow. E.I. du Pont de Nemours and Company (NYSE/DD), better known as DuPont, also reported very good second-quarter numbers and cited volume growth along with increasing prices as reasons for its improvement. Most economists, however, expect the U.S. economy to slow in the second half and, while economists are usually proven wrong, the consensus seems probable.

If there wasn’t growth in Asia, then I think U.S. corporations wouldn’t be reporting the kind of numbers we’ve seen this second quarter. We’re definitely on the right track, but we’ve got a long way to go before we can say things are back to normal.