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So You Think It's Rough Here?
Highlights include Caterpillar, Inc. (CAT - Analyst Report), Manitowoc Co., Inc. (MTW - Snapshot Report) and The Boeing Company (BA - Analyst Report).
Next Friday we will get the first revision to the first quarter GDP report. I am not expecting any major changes to it. The economy slowed at a 6.1% annualized rate, or an actual decline of 1.6%, following an almost identical decline in the fourth quarter. Those back-to-back declines were enough to make the unemployment rate jump from 6.2% in September to 8.5% in March (and 8.9% in April).
Pretty ugly, but it could be worse. We were actually one of the best-performing major industrialized economies in the first quarter. The old Axis powers had a particularly rough time of it, with Japan down 4.0% or at a 15.1% annual rate, while Germany dropped 3.8% or at a 14.4% annual rate and Italy fell 2.4%, or at a 9.3% rate. The Euro zone as a whole dropped 2.5% (9.6%). The UK fell 1.9% (7.4%).
The only big advanced economy to outperform ours was France, which fell "just" 1.2%, or at a 4.7% annual rate. Thus, the U.S. is actually increasing its share of the world economy, although not as much as China is, since it is still seeing positive growth of about 6.0% annualized (if you believe their statistics).
This is going to make it more difficult to get a sustained recovery going since there is no obvious locomotive to pull the world economy. While we have benefited in the sense of better GDP growth from an improvement in net exports, this has been because our imports have plunged faster than our exports have fallen. Of course, our imports are someone else's exports, which partially explains our better relative position. However, there does not seem to be a lot of import substitution going on -- it is simply a reflection of lower demand and inventory reduction.
It is also bad for profits since many S&P 500 firms get more than half their revenues from overseas. Capital Goods suppliers, which either export a lot or which have substantial overseas operations, seem particularly vulnerable. With demand down and capacity sitting idle around the world, why expand capacity?
Yes commercial real estate (CRE) is weak here, but it is booming relative to CRE in Dubai. OK, Dubai was the poster child for excess over the last decade, but what about more established places? Well, as we speak there are over 9 million square feet of empty office space in London, and that is forecast to rise to 12 million square feet by the end of the year. Sales of firms like Caterpillar (CAT - Analyst Report) and Manitowoc (MTW - Snapshot Report) are likely to be casualties.
Air traffic is down around the world, as highlighted by the massive loss just reported by British Airways. That does not bode well for Boeing (BA - Analyst Report). It also means that you cannot really hide out in overseas markets, since they are facing even more severe economic headwinds than we are.
Next Friday we will get the first revision to the first quarter GDP report. I am not expecting any major changes to it. The economy slowed at a 6.1% annualized rate, or an actual decline of 1.6%, following an almost identical decline in the fourth quarter. Those back-to-back declines were enough to make the unemployment rate jump from 6.2% in September to 8.5% in March (and 8.9% in April).
Pretty ugly, but it could be worse. We were actually one of the best-performing major industrialized economies in the first quarter. The old Axis powers had a particularly rough time of it, with Japan down 4.0% or at a 15.1% annual rate, while Germany dropped 3.8% or at a 14.4% annual rate and Italy fell 2.4%, or at a 9.3% rate. The Euro zone as a whole dropped 2.5% (9.6%). The UK fell 1.9% (7.4%).
The only big advanced economy to outperform ours was France, which fell "just" 1.2%, or at a 4.7% annual rate. Thus, the U.S. is actually increasing its share of the world economy, although not as much as China is, since it is still seeing positive growth of about 6.0% annualized (if you believe their statistics).
This is going to make it more difficult to get a sustained recovery going since there is no obvious locomotive to pull the world economy. While we have benefited in the sense of better GDP growth from an improvement in net exports, this has been because our imports have plunged faster than our exports have fallen. Of course, our imports are someone else's exports, which partially explains our better relative position. However, there does not seem to be a lot of import substitution going on -- it is simply a reflection of lower demand and inventory reduction.
It is also bad for profits since many S&P 500 firms get more than half their revenues from overseas. Capital Goods suppliers, which either export a lot or which have substantial overseas operations, seem particularly vulnerable. With demand down and capacity sitting idle around the world, why expand capacity?
Yes commercial real estate (CRE) is weak here, but it is booming relative to CRE in Dubai. OK, Dubai was the poster child for excess over the last decade, but what about more established places? Well, as we speak there are over 9 million square feet of empty office space in London, and that is forecast to rise to 12 million square feet by the end of the year. Sales of firms like Caterpillar (CAT - Analyst Report) and Manitowoc (MTW - Snapshot Report) are likely to be casualties.
Air traffic is down around the world, as highlighted by the massive loss just reported by British Airways. That does not bode well for Boeing (BA - Analyst Report). It also means that you cannot really hide out in overseas markets, since they are facing even more severe economic headwinds than we are.