Strategies: Goldman’s Beige Book Shows an Uncertain Business Outlook

In recent years, the document has been an appropriately gloomy chronicle of economic distress, but it is enlivened by choice anecdotes. The current version, published in October, for example, says that in the Fed’s Cleveland, New York, Philadelphia and Dallas districts, demand for used cars has created shortages, while in the Minneapolis and Chicago regions, shoppers have been “trading down to value products at grocery stores.” Wages have been stagnant over all, but in Atlanta and San Francisco, there are bidding wars for information technology specialists, and in Cleveland, pay is rising for truck drivers.

If only because it moves the markets, the Fed’s beige book is worth perusing. But as I discovered last week, another beige book produced by a formidable organization — Goldman Sachs — is more useful in assessing the outlook of corporate America.

This second version, called the “United States S. P. 500 Beige Book,” is compiled quarterly by Goldman for clients, not the general public. Unlike the Fed’s summary, which relies on a variety of sources, the Goldman version emphasizes a series of pithy statements made by senior executives during earnings conference calls, and the current selection makes for disturbing reading.

Corporate America continues to churn out impressive profits. But the report shows that economic uncertainty — much of it generated in European capitals and in Congress — is impeding spending and investing. This helps explain why Goldman is projecting relatively little growth for the economy or the stock market through 2012.

Consider this statement from Stacy J. Smith, chief financial officer of Intel: “While business levels remain strong, the uncertainty around 2012 G.D.P. growth rates has caused us to slow hiring for the rest of this year.”

Or this one by Jim Skinner, the chief executive of McDonald’s: “The economists say we’re officially out of the recession, but it hardly feels that way,” he said, adding, “Consumers everywhere continue to be cautious and hesitant to spend.”

Or this one, by Salvatore Iannuzzi, C.E.O. of Monster Worldwide: “We are not giving guidance, certainly at this point, with regard to 2012 for the simple fact it’s just too difficult to predict. We do not have a basis at this point. Faced with this heightened lack of confidence, firms around the world are scaling back their hiring plans and more carefully controlling their spending.”

Taken individually, such comments may seem idiosyncratic. Displayed together, a pattern emerges. The Goldman beige book is “a grand mosaic” assembled from executives’ comments about prospects for their enterprises and for the larger economy, says David J. Kostin, Goldman’s chief United States investment strategist, who heads the team that creates the report. “This is not my voice,” he says. “It’s what seasoned business executives are saying.”

Three striking themes arise from the latest round of earnings calls. First, he says, is the unusually high degree of uncertainty. “A lot of it is coming from the crisis in Europe and from the budget impasse in the United States and from all of the unresolved macroeconomic problems out there,” he says.

What is the effect? “The uncertainty is what is driving the decisions of corporate America not to pursue certain business opportunities, to maintain flexibility on the balance sheet in case there are more problems ahead.”

For example, Laurence D. Fink, C.E.O. of BlackRock, says: “Politics and government are playing a major role in market performance and market volatility.” He adds: “This is a confidence crisis, not a liquidity crisis. There’s trillions and trillions of dollars sitting on the sideline.”

In a similar vein, David Simon, the chief executive of the Simon Property Group, says, “The biggest caveat that we have is all about the macro. Where is the economy? Where is consumer confidence? The election year throws a whole set of psychological issues at the consumer, none of which are positive.”

Mr. Kostin says that executives and investors are “obsessed” with the question that is a second theme of the report: In a weak economy and with rising commodity costs, can companies maintain their profit margins? An affirmative answer is needed to sustain the healthy earnings that have propped up prices in the stock market — but there is no real clarity across corporate America.

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