Some companies tell you a lot about the state of the economy. Three of those companies -- industrial supplier MSC Industrial (MSM -0.01%), banking giant Wells Fargo (WFC -0.03%), and appliance stalwart Whirlpool (WHR -0.39%) -- will give earnings in January. Here's why what they say is so vital to monitoring the economy and how you invest in 2024.
MSC Industrial: First-quarter earnings on Jan. 9
This company distributes metalworking and maintenance, repair, and operations (MRO) products and services. As such, it's not hard to see how its sales growth figures reveal a crucial insight into manufacturing conditions in the U.S. Moreover, its sales are highly sensitive to cyclical changes in U.S. manufacturing.
That's why investors were worried to hear CEO Erik Gershwind's talk of sales stepping down sequentially in September. The step down was "indicative of further softening ... as companies and consumers deal with the effects of sustained higher interest rates and recessionary fears," according to Gershwind on the company's earnings call in October.
The weakness in its end markets is evident from the slowdown in manufacturing sales in its fourth quarter (ended Sep. 2).
Data source: MSC Industrial.
The company has already reported September average daily sales growth of 1.3%, and management estimated average daily sales growth of 1%-2% in October. So we know the first quarter of 2024 (comprising September, October, and November) will be weak. The real question is what management will say about the cadence of growth in November, December, and the start of January.
Investors have reason for optimism because MSC Industrial was negatively impacted by the United Auto Workers strike in 2023, and there may well be a bounce back in sales. However, if there isn't, it will be a sign of further weakening in the industrial sector.
Wells Fargo: Fourth-quarter earnings on Jan. 12
One of the biggest banks in the U.S., Wells Fargo, will always be followed closely for what it says about lending conditions and the state of the U.S. economy. It's particularly relevant to follow in a period of interest rate volatility, where you might expect rising load defaults to impact the economy negatively.
One way to keep an eye on matters is to monitor non-performing loan rates at Wells Fargo. Non-performing loans mean a borrower has failed to meet a scheduled repayment. As you can see below, based on data from Wells Fargo, the consumer (and the residential mortgage market portion of consumer borrowing) appears to be in good shape. Interest rates started rising significantly at the start of 2022, which hasn't caused significant stress in the mortgage market yet.
It's a different story in the commercial real estate market, though, notably in the office sector. However, this is probably also a consequence of workers' greater willingness to work remotely.
Data source: Wells Fargo presentations.
Suppose Wells Fargo reports similarly favorable conditions in the residential debt markets in the fourth quarter. Investors would then have reason to be optimistic about the housing market in 2024, especially if interest rates decline later in the year. On a more negative note, the commercial real estate market is an ongoing watch item.
Whirlpool: Fourth-quarter earnings on Jan. 30
In the residential housing market, Whirlpool is a company worth following closely. While Wells Fargo's non-performing loans in the residential mortgage market are doing fine, it doesn't mean housing market-related spending is doing fine, too. After all, mortgage rates are higher, so monthly payments also will rise.
CEO Mark Bitzer talked of "solid" demand in America in the third quarter, driven by "very strong replacement demand" as appliances were heavily used. However, Bitzer noted that the "other side of demand discretionary purchases have been even softer than anticipated as a result of increased mortgage rates and low consumer confidence."
Image source: Getty Images.
This kind of outlook led to Whirlpool lowering its full-year earnings guidance to $16 from a range of $16-$18 previously. That said, there's a strong case for buying Whirlpool as a high-yield play for 2024 based on both its potential to recover as interest rates fall and the results of its cost-cutting plan fall into its margin. It makes sense to listen closely to what management says about consumer spending trends when it gives results at the end of January.
