Tight fists choke stocks

By Frank Maley

Slowly, it seems, Americans are opening their wallets, swiping their plastic and buying more. Consumer spending rose 0.3% in May, the latest month figures were available, but it will take a lot more than a tiny bump to pull the country out of recession.

Tight consumer and corporate purse strings strangle stock prices, says Mark Vitner, senior economist at Wells Fargo Securities LLC in Charlotte. “For companies that sell into the domestic marketplace, the underlying demand for their products has weakened even more than the gross domestic product. Revenue and earnings have taken a huge hit, and that’s had a significant impact on their share prices.”

Public companies based in North Carolina haven’t been immune. In the latest fiscal year, more than two-thirds of the 75 largest lost money or saw net income drop. During the 12 months that ended June 30, more than three-quarters lost market value. The market cap needed to make Business North Carolina‘s Top 75 list — compiled this year by Memphis, Tenn.-based Mercer Capital Management Inc. — slid from $62 million to $42 million.

The biggest percentage gain belonged to a newcomer, Raleigh-based BioDelivery Sciences International Inc. Its shares surged on news about a pain treatment in development. The biggest loser on the Top 75 was FairPoint Communications Inc., a Charlotte-based rural telephone-service provider burdened with debt and decreased demand. It fell to 69th from 32nd last year. But no company fell as far and fast as R.H. Donnelley Corp. The Cary-based Yellow Pages publisher failed to make the cut this year after placing 13th two years ago and 55th last year. Struggling with debt and sagging advertising sales, it filed for Chapter 11 bankruptcy in May and by early July had a market cap of less than $4 million.

Economists say there’s reason to believe the recession will end later this year or early next, but full recovery will take longer. “It’s a bit like you’ve been in an ice storm and the temperature has been 20 degrees for a couple of days and it rises up to 33 or 34 degrees,” Vitner says. “Technically it’s not freezing outside, but it’s pretty cold. That’s kind of where the economy is going to be later this year. Maybe the economy isn’t declining anymore, but conditions are still going to be awfully weak.”