PhillyDeals: Recovery? Don't trust the corporate reports

The stock market is rising again as companies report "better-than-expected" quarterly profits.

But this isn't a recovery. Corporate America is still making money mostly by cutting people and other costs, not boosting sales.

It is no real surprise when companies beat the projections published by Wall Street analysts, based mostly on data the companies fed the analysts. They like to look as if they're overachieving.

But as economist Ed Yardeni told clients in a second-quarter note yesterday, looking at the big Standard & Poor's 500 companies broken down by industry group: "All 10 sectors have a positive earnings surprise, but just five [sectors] have a positive sales surprise, so far."

That doesn't mean sales were up for half the companies. It means they beat their own claims of low expectations: If you told people you thought sales could drop 10 percent, and they only fell 5 percent, that is still a "positive surprise."

That is like the banks and pension funds that paid traders and managers bonuses last year, not for making their clients money, but for losing less than others did.

As Yardeni notes, "51.8 percent of the companies have a positive sales surprise, but just 25.6 percent of the companies have sales up year-over-year."

That means sales fell at three-quarters of the companies, compared with a year earlier.

At

Cigna Corp.

in Philadelphia, net income more than doubled, to $435 million for the second quarter, compared with last year. But most of the gain came from investment revaluations and cost cutting, including a freeze on the employee pension fund.

Sales for the firm's major business, health insurance, fell to $2.86 billion, from $3.07 billion, as membership in Cigna health plans fell to 11.2 million, down from 12.1 million a year earlier.

Cigna's after-tax profit margin on health insurance rose to 5.4 percent, from 5.2 percent a year earlier. How do you get more from less? By laying off workers (Cigna announced cuts in January), reducing procurement costs (which means paying vendors less), and cutting real estate costs, spokesman Chris Curran told me.

In time, higher profits ought to lead companies to build up their businesses again, and hire people instead of cutting them. But until that happens large scale, we're not out of this recession in ways that matter.

Dairy farmers don't get winters off like South Jersey vegetable growers. The rest of life - marrying, burying - is something you do between two milkings, every day, always. Plus pastures, haying, mucking, cleaning, silage, fuel, machines, regulations, debt.

Milk prices paid to farmers have fallen by half since 2007. Pennsylvania is home to 8,500 of the 65,000 U.S. dairy farms. Four Pennsylvania representatives are among 15 congressmen who this week re-formed a bipartisan "Congressional Dairy Farmers Caucus" in response.

You can see why Democrats Chris Carney and Kathy Dahlkemper and Republican Glenn Thompson joined: They represent the dairy belt across the state's north. But why is Democrat Joe Sestak, of crowded Delaware County and King of Prussia, in this group?

Urban congressmen might worry more about consumers, now enjoying cheaper milk, than farmers. But Sestak aspires to statewide leadership - Arlen Specter's Senate seat - so he is reaching upstate.

"We want to salvage these dairy farmers," while leaving "no impact on consumers," Sestak told me.

That is a tough marriage. The group's short-term goals, he says, include boosting federal subsidies to cover the gap between prices and costs. Longer-term, they want to limit "speculation" by commodities traders, set a national quota-and-price system to replace today's complex regional arrangements, boost exports with "incentives," and prod the government to buy more milk for public programs.

Sounds like higher prices. Maybe we cannot afford all the dairy farms we still have?

"It used to be millions," Sestak said. "I don't think there are too many. You don't want to pull the plug on 65,000. It's a very educated, hard-working population. You cannot forsake these regions."