Markets bearish on recovery

Shoppers can't be counted on to restart company profits this year

LONDON, England (CNN) -- European and U.S. economies appear to be recovering faster than expected. Inflation is low and consumer spending is strong.

So why are stock markets going the other way?

Economists say the recovery of 2002 is not like previous rebounds -- that it may take a little longer for companies to cash in on the benefits.

There are numerous reasons:

"If we are going back to a more traditional 1950s, 1960s style of economic activity, we are also going back to a '50s, '60s style of inflation performance," says John Shepperd, an economist with investment bank Dresdner Kleinwort Wasserstein.

"And that means that you just can't raise prices to restore profits the way the corporates have been used to doing in the good old '70s and '80s."

It may be too harsh to call this a "profitless" recovery, but share prices are reflecting all the pessimism.

After another bad quarter of profit statements, though, some companies may see green shoots later this summer.

"We will see a real profits recovery coming through this year," says Ben Rudd of HSBC.

"We are looking for 15 percent operating earnings growth in the industrial elements of the S&P, and I think that will drive markets higher. The question is when that starts to come through in terms of real numbers."

Another question mark will be consumer spending. Shoppers usually help kick start a rebound, but last year they hardly stopped spending -- which means they can't be counted on to restart company profits this year.

In fact, the huge mountain of consumer debt built up last year may actually mean a slowdown in shopping -- just one more reason some companies may not see the full effects of a recovery this year.