Recession Update: The Fedex Warning

By SBE Council at 16 September, 2022, 12:59 pm

SMALL BUSINESS INSIDER

by Raymond J. Keating –

At the start of Friday, September 16, the financial markets made very clear that they didn’t like what Fedex Corp. had to say about the state of their delivery business, the current economy, and the outlook for what lies ahead in terms of the U.S. and global economies.

After the market closed on September 15, Fedex reported that it notably missed market expectations on both revenues and earnings, and noted that it’s worried about a global recession.

As Reuters reported, newfound worries regarding the economy come from the Fedex news and more: “FedEx said it was cutting costs including shutting some FedEx Office locations, reducing labor hours and consolidating some sorting facilities… The World Bank earlier on Thursday said the world’s three largest economies – the United States, China, and the euro area – have been slowing sharply, and even a ‘moderate hit to the global economy over the next year could tip it into recession.’”

“The economic conditions are not really good.”

On CNBC, Fedex CEO Raj Subramaniam said, “We’re seeing that volume decline in every segment around the world, and so you know, we’ve just started our second quarter. The weekly numbers are not looking so good, so we just assume at this point that the economic conditions are not really good.” And a bit later: “We are a reflection of everybody else’s business, especially the high-value economy in the world.”

FedEx News Squares with Troubling Economic Data

This news must be combined with other worrisome data and trends. At the top of the list is the fact that U.S. economy already has declined in two straight quarters (-0.6 percent in the second quarter of this year and -1.6 percent in the first quarter), which normally is recognized as a recession.

Source: Federal Reserve Bank of St. Louis, FRED

For good measure, assorted recent economic reports have been at best mixed, or downright troubling. That includes the latest retail sales data, industrial production numbers, trade numbers, and pessimism in the latest Fed Beige Book. And of course, inflation uncertainty persists and wears on everyone, from consumers to small business owners to investors.

Meanwhile, while the U.S. remains the globe’s most important economy, U.S. policymakers seem bewildered or ignorant as to how policy impacts the economy. That includes the Fed not having a clue as to what it’s doing and seemingly intent on crushing the economy (see SBE Council analysis here), and the White House and Congress focused on increasing tax and regulatory burdens, continuing with protectionism on the trade front, and jacking up government spending. That’s a recipe for economic decline.

As SBE Council has noted before, this economy will fight off a pandemic and related challenges, and a recession thanks to resilient entrepreneurs, businesses, investors and workers. But any recovery and growth will be greatly restrained by governmental policies that raise costs, increase uncertainty, and diminish incentives for entrepreneurship and investment. Policy matters, and Washington is intent on getting everything wrong on policy.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.