While the global data have been underwhelming to say the least, we also see that corporate guidance is finally starting to reflect the erosion that has been posted in many economic reports since mid-summer. FedEx, just about a cyclically-sensitive a company as you can find, cut its full-year forecast, citing the broad weakening in global growth. For recession naysayers, consider that the company’s stock price is now down 30% (!) for the year.
And it’s not just FedEx. Earnings expectations are now slipping across a broad front and there is much more to go with the consensus still penning in $111 of operating EPS for next year. But progress toward at least a modicum of capitulation is coming to the fore with estimates now at +13% YoY from 16.4% a short two months ago.
It is becoming increasingly obvious that we are heading toward the first consumer-led recession in 30 years, now that the lack of policy stimulus has exposed the debt-laden household sector for what it is: frugality mode. One recent example: used car retailer CarMax just reported a 2% drop in used car sales this month, missing its estimates for the first time in 2½ years — at a time when September chain stores are running below plan.
The deleveraging is ongoing as the Fed reported that lenders originated 7.9 million mortgages last year, which was down 12% from 2009 levels. This reflects demand for credit — or lack thereof — rather than supply (another hurdle for the banks — no asset growth — as the FT today suggests that several are reverting to a net loss position this quarter).
Europe is seeing much the same with consumer confidence there sagging to a two-year low. Ditto for industrial activity (China as well) based on the latest survey data. Is it not amazing that European parliaments are still in the process of ratifying the agreement on expanding the EFSF... from July 21st??.
Meanwhile, there is certainly nothing concrete coming out of the G-20 meeting to instill much confidence either, unless platitudes get you excited. Don’t expect China, with a 6.2% inflation rate (the government is targeting 4%) to begin a fiscal and credit easing initiative as it did in a version of global economic bailout back in late 2008.