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Earnings forecasts are always more of an art than a science, especially when the economy is at an inflection point. Companies, however, can expect little leniency when they miss expectations. Dow Chemical became the latest victim on Thursday, with its shares sliding by 10 per cent.

As the largest US chemicals maker, Dow’s profits have been squeezed by rising energy and raw material costs. While its share price has been heading south since early 2005, it is hard to quibble with market assessments that conditions for the sector are likely to get worse before they get any better. Dow itself doubts it can improve on last year’s bumper profits.

Along with the stumble of United Parcel Services earlier in the week, that is a reminder that the sectors most directly affected by higher oil prices are already feeling the squeeze. Signs of trouble in chemicals and transport are always disconcerting in terms of the implications for the broader economy.

But a closer look at Dow and other bellwether stocks suggests some potentially even more worrying trends. Notably, the 7 per cent increase in Dow’s US revenues was exclusively due to price hikes, while volumes remained flat. By contrast, volume growth in other parts of the world was fairly healthy, while price rises were more subdued.

Others, notably Dow’s rival Du Pont and diversified manufacturer 3M, have already reported similar movements, with volumes weaker and prices rising more swiftly in the US than much of the rest of the world. Taken at face value, that suggests US companies providing key inputs still have a bit of pricing power at home, even in the face of weaker demand. It is hard to think of a worse combination for monetary policy makers – or investors still expecting market-wide earnings momentum to remain strong over the medium term.

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