business

Corporate profits may grow at the slowest pace of the year in the third quarter as an economic recovery that's short on jobs and consumer demand curbs income at companies from Chevron Corp. to 3M Co.

Earnings at Standard & Poor's 500 index companies may rise 25 percent in the three months through September, compared with projected gains of 34 percent for the just-ended second quarter, according to analysts' estimates compiled by Bloomberg. Per-share earnings rose 52 percent from January through March.

"We've got players out there that are suffering from Armageddon hypochondria," said James Paulsen, chief investment strategist of Wells Capital Management in Minneapolis, which oversees $375 billion. Instead of portending an economic crisis, the slower profit growth is "your commonplace, very normal mid-cycle soft patch in the recovery."

Financial-market turmoil has increased risks to the recovery, the International Monetary Fund said Thursday, while predicting the world economy will grow 4.6 percent this year, the most since 2007. In the United States, the S&P 500 dropped 12 percent from April through June as unemployment averaged 9.7 percent and new home sales slumped to the lowest pace on record in May.

Sales at non-financial companies will be the best indicators of the economy's health worldwide, said Sinan Akiman, chief investment officer at Istanbul-based Garanti Asset Management, which oversees $4.2 billion.

"If there is no, or very limited, increase in sales of non-financial companies, that means the economy is still not recovering," Akiman said. "We should especially look at big retail industry companies."

In the U.S., earnings gains for S&P 500 companies will continue through the second half of 2010 and average 34 percent for the full year, said analysts surveyed by Bloomberg project.

"Our economy is beginning to repair itself, but it's by no means ready to run a marathon," said Matt McCormick of Cincinnati-based Bahl & Gaynor Inc., which has $2.8 billion under management.

In energy, fuel demand may be stunted at Chevron, Exxon Mobil Corp. and ConocoPhillips, the largest U.S. oil companies. New York oil futures, which traded as high as $87.15 a barrel in May, dropped to as low as $71.09 this month. San Ramon, Calif.-based Chevron's net income may more than double for the second quarter, then slow to about 10 percent this quarter, analysts estimate.

Maplewood-based 3M, the maker of 55,000 products, including Scotch tape, may post 21 percent per-share profit growth for the just-ended period, based on the average estimates. Analysts predict growth will steadily decrease in the second half amid tougher comparisons and fewer sales of respiratory masks used last year to ward off the H1N1 flu.

"2010 is kind of a twisted year: First half, huge growth, second half, not as big but still growing," said Ajay Kejriwal, a New York-based analyst with FBR Capital Markets who has an "outperform" rating on 3M shares. "We are saying, 'Look beyond the second half. The long-term picture is much brighter.'"