Why Are You Ignoring This Leading Economic Indicator?

Economists are always thirsty for new economic data to help them predict where the world markets are headed next. Unfortunately, most often overlook one of the leading indicators of the health of an economy. No, I'm not talking about GDP, the unemployment rate, or even the Purchasing Managers Index. I'm talking about actually taking the time to listen to what global shipping giants United Parcel Service (NYSE: UPS  ) and FedEx (NYSE: FDX  ) have to say about global business.

Think about it: These businesses handle countless packages worldwide. From business-to-business shipping to consumer purchases online, their health and well-being is often intricately tied to the health of the economy. Do any analysts actually heed what they have to say? Probably not enough, if you ask me.

Take yesterday, for example, when UPS held its first investors conference in three years. The company reaffirmed its previous guidance for revenue growth of 6%-8% annually through 2016 with earnings growth of 10%-15%. Earnings, as you'll notice, are slated to grow more quickly than revenue as the company looks to reward shareholders with large share buybacks while also keeping costs at bay. Surprisingly though, with the market up considerably yesterday, UPS's stock hardly budged even as the company also reaffirmed its full-year earnings forecast of $4.15-$4.40.

Then we have FedEx, a company that had shed nearly a quarter of its value despite reporting five consecutive quarters of double-digit revenue growth. In its latest quarter, FedEx reported 33% revenue growth over the year-ago period, with CEO Frederick Smith commenting that, "During fiscal 2011, an improved economy, strong customer demand and decisive actions to grow our business led to increased volumes and yields across all transportation segments." This doesn't exactly sound like a doom-and-gloom forecast, if you ask me.

Even if you look beyond the big two in shipping and expand outward to railroads and trucking, the results are predominantly the same. Union Pacific (NYSE: UNP  ) CEO Jim Young feels that while economic growth may be slowing, demand for energy products including coal will remain strong. Trucking giant J.B. Hunt Transport Services (Nasdaq: JBHT  ) also reported strong results in July, with all four of its business segments showing growth. For truckers like J.B. Hunt, slower economic growth can actually have a positive effect on profits. As oil prices fall in relation to demand, the company will benefit from having to pay less for fuel.

While no one knows for sure whether or not we're headed for a double-dip recession, these "leading indicators," as I call them, appear to be giving off vastly different signals than what the government has released. The jury is still out as to who's right, but for right now, I'm inclined to believe these global transportation companies.

Do you have a favorite company that you use as a macroeconomic indicator? Share your ideas with the community in the comments section below and consider adding United Parcel Service and FedEx to your watchlist.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong. The Motley Fool owns shares of United Parcel Service and FedEx. Motley Fool newsletter services have recommended buying shares of FedEx. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that equates to ethical logistics.


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  • Report this Comment On September 16, 2011, at 12:03 PM, pawson wrote:

    It can sometimes be a bit harder to get to, but a friend who used to work for a large trash hauler claimed that total volume of recycled cardboard was a strong leading economic indicator. His take was that everything travels in cardboard at some point and most large businesses recycle their cardboard.

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