The Global Economy Is Stalling; Its Growing Impact On U.S. Companies

Includes: FDX, UPS
by: John M. Mason

"FedEx Corp. says the global economy is stalling, and it's going to get worse next year." See report on Federal Express Corp (NYSE:FDX) in the New York Times.

A decline in global trade, along with high fuel prices, is shrinking earnings, claimed Federal Express as it lowered earnings for this year and for 2013, as well.

A steep decline in Asian exports due to weakness in Europe is causing most of FedEx's pain. And people are shipping more by ground transportation or ocean transportation than they are shipping by air. The prominent reason is cost.

Projections of earnings for the full year are $0.70 to $0.80 less than earlier forecast, which is not an insignificant reduction. United Parcel Service, Inc., (NYSE:UPS) has also stated that it believes that the economy would get worse in the future.

What is happening to these two companies is important because of the number of shipments they handle and the number of countries they work within.

The stock market has picked up on as the price of FedEx stock has been declining since February, and the price of UPS stock has been declining since April.

In addition the Dow Jones Transportation index has declined over the past seven months from a peak on February 3, of 5,368.93 to 5,081.40 on September 18, a drop of about 5.5 percent. Both FedEx and UPS are included in this index.

The point I want to make is that we are seeing a number of the basic indicators of general economic health pointing to continued slow economic growth or to economic growth that is becoming even slower.

This is consistent with the feeling that Ben Bernanke and the Federal Reserve have given us in recent days. The attitude conveyed by the recent Fed announcement is nothing if it is not gloomy. See my recent post on the rationale behind the move to QE3.

Yes, there are some movements in the economy that are positive in nature, like the recent press releases indicating that there might be some pickup in the residential housing market.

Still, we are getting more and more information from the corporate world that expectations are not being met, especially on the earnings side. Here I refer specifically to the New York Times article, "Earnings in United States Are Beginning to Feel A Pinch".

What also gets my attention in the article on Federal Express is the comment on the steep decline in Asian business that is apparently being caused by the weakness in Europe.

We keep hearing that events in Europe and Asia are going to have repercussions on economic activity in the United States.

Well, here is explicit evidence of the impact that the slowdown occurring in other parts of the world is having more and more negative impact on U.S. companies.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.