FedEx provided an excellent glimpse of the macro economy this morning when they reported earnings. All in all, the numbers were solid even though they came in shy of Wall Street’s expectations. They reported 12% YoY revenue growth and strong growth in average daily package growth. Although the package data has little to no utility as a leading indicator it is one of the very best real-time indicators that are out there. The trends we’ve all been hearing about are apparent in the operating statistics at FedEx. In essence, the emerging market economy (with double digit growth) is leading the charge and domestic growth continues to lag in the low single digits:
The company’s Chairman, Frederick Smith says the economy is improving:
“Solid demand for our transportation solutions, outstanding customer service from FedEx team members and a healthier global economy helped drive second-quarter revenue higher. Our yield improvement strategy is working, holiday peak season volumes are exceeding our expectations and our economic forecast for calendar 2011 has improved. Accordingly, we have increased our earnings outlook for our current fiscal year.”
All in all this a pretty positive sign. What we essentially have is an uneven economic environment where the emerging world has more than recovered from the financial crisis and the developed world remains weak. In the USA a $1.3T budget deficit is supporting growth (we have not talked ourselves off the edge of the austerity cliff as I hoped we would not earlier this year) and the de-leveraging has slowed enough (to my surprise) to contribute to growth. Although I still believe we are in for below trend growth due to US consumer weakness (balance sheet & debt headwinds, housing headwinds, jobs headwinds, etc) it’s clear that US corporations are generating enough revenue growth to sustain tepid balance sheet expansion and fairly strong earnings. The domestic weakness makes the US highly susceptible to any exogenous risk so it will be important to continue keeping a close eye on foreign economic data – particularly China. This all makes for a positive, yet difficult to navigate environment for equities.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.