Words From Caterpillar
A: I hope I don't need to explain why the words from a company like Caterpillar (NYSE: CAT) may be important from a trickle down confidence perspective to the housing markets! Lets get right to what they said.
via TheStreet.com:
* "MANY US INDUSTRIES ALREADY IN RECESSION"
* "US ECONOMIC REBOUND GONE"
* "THE NORTH AMERICAN ECONOMY WILL GROW WELL BELOW POTENTIAL"
* "WEAK ECONOMY WILL ENCOURAGE THE FED TO REDUCE INTEREST RATES FURTHER"
Oh happy day. Included in the report though were comments on the very strong global economy. The thing to note here is that this report goes hand in hand with confidence in the homebuilding sector. While CAT has many businesses, its the demand for heavy equipment that is considered a barometer of sorts for US economic conditions/confidence. We know from the housing reports on Wednesday that builder confidence is at the lowest level in more than 12 years. So, this report is not shocking. But for forward thinkers, CAT is one company whose statements are worth noting for any sign of improvement in heavy equipment demand that may signal renewed confidence in the future of the US economy.
Posted by newbie
Mon Oct 22nd, 2007 01:57 PM
Noah,
Technically we don't know if this US is in a recession until after it has occurred (I believe it's measured by two or three successive quarters of declining GNP). So it seems the representative from CAT is only speaking for his/her company/industry or giving reasons for lackluster performance (I'm unable to access the story to get the full context).
I see how this statement can be viewed as a leading indicator of things to come in the housing market, and confidence and influence markets. But before we start having the alarm bells go off after reading soundbites like "MANY US INDUSTRIES ALREADY IN RECESSION" we should consider the source. Many economists say that other leading indicators show the economy is stronger now than during the last recession from a few years ago.
Posted by Noah
Mon Oct 22nd, 2007 02:08 PM
newbie - 100% agreed! This should be used for what it is: statements from CAT exec's about what THEY are seeing!
Your other question is very interesting. How do you define a recession. The main definition is:
A decline in a country's real Gross Domestic Product (GDP) for two or more successive quarters of a year
But others define it differently OR look at declines in employment, investment, deflation, or slow growth + sharply rising prices in what is known as stagflation.
Not sure how I would define it actually. Dont really care. As you state, we dont know if we are in a recession until AFTER it has occured. Im more interested in forward leading dynamics and how one market effects another.
Posted by drtomaso
Tue Oct 23rd, 2007 01:47 AM
This wasnt CAT giving excuses for poor performance, because their quarter was "the best quarter for sales and revenues ever, not just the best third quarter. In terms of profit per share, it was the best third quarter in our history and our second-best quarter of any quarter ever. . . The growth was driven by continued and significant strength in sales **outside** North America..."
Emphasis added is my own. CAT did good- but they see the US going into a recession in spite of it.
The more important figure is the 70% of Americans who think we are already in a national recession, and will tailor their spending habits accordingly. That alone may seal the deal...