THE first time the Dow Jones Industrial Average hit 12,000, in October 2006, presenters on CNBC, a business channel, almost caught fire with excitement. When it reached that milestone again on February 1st the reaction was more muted, though the recovery from a low of 6,547 less than two years ago is remarkable, and soaring share prices reflect a corporate America that is leaner and stronger than it was back in 2006.

The current profit-reporting season is shaping up to be one of the best ever. For non-financial firms in the S&P 500, earnings per share are now higher than they have been for at least a decade. With over half of the companies in the S&P 500 having reported, profits in 2010 were up by 17% compared with 2009. (The year-on-year increase is far greater if financial firms are included, since they plunged in 2009 and then rebounded spectacularly.)

The Dow was helped on its way by strong quarterly profits from Alcoa, an aluminium producer, which generated more than $1 billion of cash from its operations in the fourth quarter, and Exxon Mobil, which reported a 53% increase in fourth-quarter profits thanks to high oil and gas prices. Its full-year profit was $30.5 billion, up from $19.4 billion in 2009.

How much longer will the party last for corporate America? The investors who took the Dow past 12,000 are less giddy than their predecessors were in 2006. The average price-earnings ratio then was 22.7—indicating that investors expected rapid future growth. Now it is a more sober 14.7.

Some fear that the productivity improvements that have driven profit growth since the financial crisis will soon tail off. “Around 90% of the productivity growth in corporate America has come from cost-cutting, and that is now reaching its limit,” says Carsten Stendevad of Citigroup's corporate-advisory arm. Scared for their jobs during the crisis, employees toiled more for no more money; but they cannot be whipped much harder. To increase profits still further, firms need to increase sales far more than most analysts think they will, reckons Mr Stendevad.

Squeezing the lemon

Others disagree. “There is a lot more juice to be squeezed out of the lemon,” insists Hal Sirkin of BCG, a consultancy. Firms brag about having introduced “lean systems”, but most have done only “10-25% of what they could do”, says Mr Sirkin.

Many firms are doing clever things: sending their product designers to visit factories to figure out how to make a new product as efficiently as possible, working out which customers are the most profitable and focusing on them, and so on. Even the best firms could do more of this, and laggards could copy them, says Mr Sirkin.

The stockmarket continues to reward cost-cutting, even if it pares muscle as well as fat. When Pfizer, a research-based drug firm, announced increased profits and a hefty cut in its research-and-development budget on February 1st, its shares surged.

Sales may at last be picking up. Analysts at Bank of America Merrill Lynch calculate that in the first week of this earnings season the number of American companies reporting better-than-expected sales outstripped the number reporting better-than-expected profits. In January American manufacturers saw their revenues grow faster than those of any other sector. If they maintain January's pace, they could grow by 5% this year.

In America, rapid sales growth is still only a rumour. In emerging markets, it is a fact. So American firms will continue to expand overseas. “Whereas 2010 was a stabilisation year [for corporate America], 2011 will be a year of investing in laying the foundation for growth,” says Mark Spelman, global head of strategy at Accenture, a consultancy.

That is likely to mean tapping into some of the mountains of cash that American firms have accumulated over the past few years. The cash piles were at first supposed to provide a safety net in case of another financial disaster. Recently, they have continued to grow because firms could not think of good ideas for putting the capital to work. If that changes and businesses start to spend again, it would be excellent news for the big tech firms that supply them with office gizmos.

Thanks to recent productivity improvements, corporate America is well placed to turn higher sales directly into higher profits, says Mr Standevad. If not investing in new organic growth, many firms will look to expand their sales through mergers and acquisitions, both at home and in emerging markets.

If, for some reason, they should fail to put their cash mountains to work, investors will demand the cash back through dividends and share buybacks. Indeed, many are already demanding, and receiving, just that. In short, as American firms expand at home and abroad, profits are set to rise and cash holdings to fall. Whether this will help the more than 9% of the American workforce who are unemployed remains to be seen.