Package Delivery Forecasts Validate Moderate Pace of Recovery

This morning's RSS feeds are abuzz with FedEx Corp having raised their earnings forecast 21% for fiscal Q1 ending 31 August, "citing an unexpectedly strong performance by its premium international delivery service" according to the WSJ. The forces behind this uptick include increased electronics exports from Asia, Western inventory replenishment and increases in online retail sales. But the retail element demands more scrutiny with reference to recovery.

FedEx is not alone in their optimism. The Journal also claims that "rival United Parcel Service Inc. lifted its own profit forecast and, along with other companies that ship goods by truck or rail, suggested that the traditional peak fall shipping season would return for the first time in three years, buoyed by industrial orders and online retail business." For FedEx, this recent projection follows "a 23% rise in the preceding quarter ... in its international priority business..." Chief Financial Officer Alan B. Graf Jr. is also quoted saying "...revenue and earnings growth are exceeding original expectations, primarily due to better-than-anticipated growth in FedEx Express and FedEx Ground volumes [as well]..."

In a possibly more ominous -- or at least less optimistic -- subtext, the article also points out that "Last month, e-commerce sales were up 9.7% from a year earlier, according to MasterCard Advisors SpendingPulse, a unit of MasterCard Inc., which tracks sales by cash, check and credit card. Online sales by specialty apparel retailers rose nearly 19% in June, while their total sales rose just 3.3%. Online department-store sales were up nearly 18%, while their total sales rose just 1.3%." The "ominousness" of which I speak relates to the significant increase in online spending among consumers. The increase itself is encouraging. But as online consumer spending expands, the commercial real estate and retail job markets will inevitably shrink even further -- exacerbating the general rate of recovery.

What's very interesting here is whether the economic malaise of the past two years has been a factor in transitioning more consumer spend away from brick and mortar retail stores -- or is this just a quiet, natural evolution? What do you think?

William Busch

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