US profits set to lose some of their shine

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US corporate profits grew at the slowest rate in more than five years in the past quarter, hit by troubles in the domestic housing market and weaker commodity prices, according to analysts' estimates.

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The predicted slowdown in earnings growth reflects Wall Street's concerns over the health of corporate America amid rising uncertainty over the strength of the US economy and jitters in global credit markets.

The reporting season for the second quarter of the year, which begins in earnest on Monday with the metals group Alcoa (NYSE:AA), will be closely watched by investors to gauge whether US companies' long run of strong profit growth is finally coming to an end.

Wall Street analysts expect companies in the S&P 500 index to report earnings 5.9 per cent higher than in the same period a year ago for the second quarter, according to Reuters Estimates.

That would be the lowest growth rate since the first quarter of 2002, when US companies were reeling from the bursting of the internet bubble and mark a sharp slowdown from the 8.6 per cent earnings growth seen in the first three months of this year. "We are expecting a bit of a drop across the board," said Ashwani Kaul at Reuters Estimates.

The woes of the subprime mortgage sector and other parts of the US housing markets are expected to depress earnings of housebuilders and some consumer goods companies. Lower commodity and oil prices should hit profits of energy companies - a big component of the S&P 500.

But some market-watchers say US companies, especially those with large overseas operations, could confound analysts' pessimism, helped by a weaker dollar and the continued strength of the global economy.

Robert Keiser at Thomson Financial said the second quarter could see a repeat of the previous three months, when Wall Street predictions proved to be much lower than actual results.

The technology sector is expected to report robust earnings growth of more than 13 per cent. But analysts expect financial groups to have grown earnings at 9 per cent in the second quarter, down from 13 per cent in the first quarter.

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