Economy Keeps on Trucking
More indicators turn positive, but potential commercial real estate and small business issues loom.
With this week's bank holiday, the flow of economic indicators was at a low ebb. Initially, unemployment claims looked encouraging, as did the more obscure job openings report from the Labor Department. FedEx (FDX) and UPS (UPS) both offered favorable comments about the upcoming holiday season, providing one of the first confirmations of improving conditions in the battered transportation sector. Small business optimism managed one of its best monthly improvements during October, but remains mired at depressed levels. While many observers fear commercial real estate issues and mortgage resets, my bigger concerns relate to small businesses and government policies. We will examine both commercial real estate and small business attitudes in greater depth next week since the flow of indicators is so light this week.
Employment Indicators Looking Up
Overall, employment news for the week was encouraging. Initial unemployment claims turned in another very strong performance, declining by an additional 12,000 this week after falling more than 18,000 the previous week. More importantly current initial unemployment claims of 502,000 are finally below the claims level of 509,000 a year ago. This marks the first year-over-year improvement during 2009. Continuing claims (a rough proxy for the number of people unemployed) also lost some altitude during the week. The Labor Department also reported that the number of job openings in September increased for the second month in a row after almost two straight years of declines. Eventually, job openings should lead to better employment levels in the months ahead.
FedEx Gears Up for the Holidays
The transportation sector has been a huge laggard in this recovery. Last year, the economy was in such bad shape, and uncertainty so pervasive, that UPS and Federal Express declined to give their usual holiday forecasts. Therefore, I was pleased to finally see some strong positive comments out of both Federal Express and UPS this week. Surprisingly, UPS termed this recovery "sustainable but fragile." Management went on to say that the consensus seemed to be for down-to-flat overall holiday sales, but UPS thought results would be stronger than that. They echoed the general consensus that online sales were poised to do better than brick and mortar establishments. FedEx was also bullish, noting that they expected peak day shipments for the holiday period would be 8% above year ago levels, and that they would be hiring seasonal employees accordingly. Revenues for the quarter now appear to be on track for flat to up after four consecutive quarters of decline. While our analyst Keith Schoonmaker cautions that DHL is no longer in the market and volumes are absurdly low, I am still comforted by the more positive comments from two companies whose business models are at the flashpoint of any economic recovery.
Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.