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10-20-2007, 02:43 PM

CEOs, Wall Street warn of recession

By Bill Rigby NEW YORK (Reuters) - Corporate chiefs and Wall Street investors warned of recession and rising costs in the United States on Friday, as a clutch of leading companies reported mixed quarterly results.

The comments struck the most pessimistic note in recent months as CEOs assessed the damage on the U.S. economy from a tumbling housing market and continuing problems in the debt market.

The U.S. economy will be "near to, or even in, recession" next year, according to Caterpillar Inc (CAT.N: Quote (http://www.reuters.com/stocks/quote?symbol=CAT.N), Profile (http://www.reuters.com/stocks/companyProfile?symbol=CAT.N), Research (http://www.reuters.com/stocks/researchReports?symbol=CAT.N)), the world's top maker of earth-moving equipment, in its earnings report on Friday.

"So we've put (the chance of a) recession in probably a 50-50 type range," Caterpillar's Chief Financial Officer Dave Burritt told Reuters in an interview.

The Peoria, Illinois-based company reported earnings below analysts' forecasts and cut its full-year profit forecast, despite strong overseas sales compensating for weakness in the United States.

In a strikingly bleak domestic outlook, Caterpillar described the U.S. trucking and non-metal mining sectors as already "in recession," and the residential building industry as in "severe recession" -- the first time the company has used the "R-word" in recent years and a categorically downbeat assessment from a company viewed as a bellwether of the U.S. industrial economy.

Diversified manufacturer 3M Co (MMM.N: Quote (http://www.reuters.com/stocks/quote?symbol=MMM.N), Profile (http://www.reuters.com/stocks/companyProfile?symbol=MMM.N), Research (http://www.reuters.com/stocks/researchReports?symbol=MMM.N)), which spans the economy with products from Scotch tape to optical films, also offered a gloomy view.

"I don't know if there's any of us out here that would hold a lot of optimism in the immediate future for (U.S.) housing," said 3M Chief Executive George Buckley on a conference call with analysts.

3M's roofing granules business has suffered along with the U.S. housing sector and Buckley said sales will continue to drift down in the near term. Earlier on Friday, 3M posted a stronger-than-expected quarterly profit, also helped by overseas sales, but its shares fell.

Die-hard leisure sectors are even coming under pressure, according to motorcycle maker Harley-Davidson Inc (HOG.N: Quote (http://www.reuters.com/stocks/quote?symbol=HOG.N), Profile (http://www.reuters.com/stocks/companyProfile?symbol=HOG.N), Research (http://www.reuters.com/stocks/researchReports?symbol=HOG.N)), which reported lower profits on Friday amid sluggish U.S. sales.

"We've got a great product and a great company that up till now (has) been recession-resistant," said Harley CEO Jim Ziemer, in an interview with Reuters. "But we never said it would be that forever. And at least in the United States, we're feeling some of the impact."

Honeywell International Inc (HON.N: Quote (http://www.reuters.com/stocks/quote?symbol=HON.N), Profile (http://www.reuters.com/stocks/companyProfile?symbol=HON.N), Research (http://www.reuters.com/stocks/researchReports?symbol=HON.N)), another wide-ranging industrial corporation, reported higher quarterly profits on Friday, but stressed that higher raw material prices are becoming a drag across all its sectors, sparking renewed inflation fears on Wall Street.

"The inflation theme reared its head again and may be a threat to earnings for the manufacturing sector," said Peter Sorrentino, portfolio manager at Huntington Asset Advisors, which holds shares of large-cap industrials including General Electric Co (GE.N: Quote (http://www.reuters.com/stocks/quote?symbol=GE.N), Profile (http://www.reuters.com/stocks/companyProfile?symbol=GE.N), Research (http://www.reuters.com/stocks/researchReports?symbol=GE.N)), United Technologies Corp (UTX.N: Quote (http://www.reuters.com/stocks/quote?symbol=UTX.N), Profile (http://www.reuters.com/stocks/companyProfile?symbol=UTX.N), Research (http://www.reuters.com/stocks/researchReports?symbol=UTX.N)) and Honeywell.

"Over the next three months, people are going to be taking a real serious look at their expectations for next year, especially on the cost side," said Sorrentino. "That's going to put some pressure on operating results next year."

(Additional reporting by Scott Malone in Boston, James Kelleher and Ben Klayman in Chicago, editing by Gerald E. McCormick)

10-20-2007, 08:31 PM
Maybe worse than recession.