Perhaps the stockmarket optimists and those economists who feel the International Monetary Fund may be too pessimistic about the extent of the US financial slowdown might like to have another go at their commentaries after the shock delivered by industrial giant General Electric on Friday.

GE is America’s second largest company and its industrial flagship: a giant of manufacturing, infrastructure, media, finance and medical businesses. It is a big exporter and has strong businesses around the world. It is so large and diversified that it is for all intents and purposes a proxy for the US economy in the eyes of many.

And on Friday GE shocked the markets by revealing a 12% drop in first quarter earnings, a fall in revenues and cut its forecast for 2008 so deeply that it expects little or no gain in profit this year.

GE did report that international sales grew 22% in the first quarter and that revenue from developing countries soared 38%. But that was not enough to save GE from reporting a sales and earnings slump that not only missed all forecasts, but undermined any confidence that America’s diversified multinationals might escape the slowdown’s impact. 

Around $US47 billion of GE’s market cap was lost on Friday as the shares plummeted 13%, their biggest fall in 20 years, and took Wall Street down 2%. It was one of the defining moments of the current market turmoil: General Electric had been seen as a safe haven, a solid defensive stock, in these difficult times. Other industrial giants, such as Honeywell and United Technologies also dropped sharply as investors feared the slowdown would also infect their businesses.

GE’s results capped the first week of an earnings season that is projected to mark the third straight quarter of declining profits. Alcoa was first off for the big groups and it reported earnings that trailed estimates; leading chip maker AMD said first-quarter sales fell short of forecasts and announced big job cuts; and then United Parcel Service (UPS) dropped its 2008 earnings estimate because of higher fuel prices and a weakening economy.

GE’s earnings forecast for 2008 now shows a profit roughly in line with last year’s result, which tends to support the contention from the IMF and some analysts that the slowdown might be shallow, but much longer than many people think. The Fed and many analysts think the US is now in recession, but will rebound in the second half and accelerate in 2009.

Troubled financial groups, Citigroup and Merrill Lynch, are expected to report more losses this week. Citi‘s market value fell below that of Apple Corp on Friday as investors realised that the banking industry is still doing it tough.

JP Morgan also reports and comments about its rescue purchase of Bear Stearns will be watched closely. Bear Stearns warned on Friday that if there’s a hitch in the JP Morgan deal, it will go bust.

Tech giants Intel, IBM, Google and eBay are all due to report. The Nasdaq, the main exchange for tech stocks in the US, had been doing a little better than the other exchanges, but these results will test that buoyancy. Google in particular, will be closely watched because its shares have shed 40% in value since last November.

Investors are noticing that traffic and “click throughs” reported on the net are slowing. That’s led to suggestions that Google has gone “ex-growth” and its earnings are being hit by the slowing economy, slowing retail sales and rising unemployment.