The Economy: Key Signals Beyond the Bailout

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The timing of the escalation of the financial crisis is likely to hurt tech firms, too, he warns. The last two weeks of the quarter "are the most important weeks for software companies to get deals done," he says. "It's hard to see how it won't have some impact for the rest of the companies in the group."

Smaller companies that serve niche markets, such as Aspen Technology (AZPN) or JDA Software (JDAS), may not be as affected in the near term because they're less subject to sticker shocks than their bigger rivals and it may still be possible for them to close deals at the departmental level without having to get approval from a client's chief financial officer, says Williams.

"If the dollar stays anywhere near the highs of August and early September, I think it will have meaningful headwinds for software companies as they report [earnings]," he says. Besides Oracle, Microsoft (MSFT), IBM (IBM), and Lawson Software (LWSN) all are very internationally oriented and would be vulnerable to a stronger dollar.

Commercial Transport

Total traffic in the railroad industry had fallen about 1.2% year-to-date as of Sept. 13, with the weak economy continuing to keep volumes down, Morgan Keegan analyst Art Hatfield wrote in a Sept. 23 research note. Union Pacific's (UNP) volumes are down 5% so far in the third quarter, more than double the 1% to 2% decline the company had estimated. That didn't stop Union Pacific from raising its profit forecast for the quarter on Sept. 22 by roughly 13% to $1.28 to $1.33 a share based on lower diesel fuel costs and increased operating efficiency.

Earnings pre-announcements so far by CSX (CSX) and Union Pacific have focused mainly on the impact of disruptions from the recent hurricanes in the Gulf Coast. Other railroads are also seeing volumes drop, especially as shipments of lumber and other construction materials have fallen off as housing starts have declined.

FedEx's (FDX) earnings for the first quarter of fiscal 2009, which ended on Aug. 31, were in line with the freight company's upwardly revised estimates as higher fuel surcharges and supportive foreign exchange rates helped offset a 3.3% decline in average daily package volumes and a 9.1% drop in average daily freight volumes.

The surge in tonnage that trucking companies enjoyed toward the end of June quickly reversed in July and most of August as soaring prices of fuel, copper, and other commodities forced domestic manufacturers to stop ordering materials, says Donald Broughton, senior transport analyst at Avondale Partners.

But with commodities prices coming back down since August, "we're seeing domestic manufacturing beginning to produce products again," and truck tonnage has picked up, he says. He thinks the general theme for the third quarter, however, will be one of slightly softer demand, though truckers "have gotten a little bit of a windfall in fuel surcharge collection this quarter."

Declining trucking volumes lasting longer than three months have predicted six of the last eight recessions in this country, typically three to five quarters ahead of time, according to Broughton. Even though an official recession has yet to be called in the latest downturn, he points to a drop in truck tonnage that began in late 2006 and continued through 2007. The fact that tonnage has been building for much of this year bodes well for an economic recovery sometime next year, he thinks.