When FedEx sneezes, it's fighting an infection from the U.S. economy and from you, its customers. The logistics company has just cut its financial forecast for the current fiscal year citing the "sluggish" U.S. economy.
What's the connection with the high-tech industry? FedEx is one of those companies whose fiscal health mirrors immediately events in the larger economy. Each day, customers bombard the company with millions of big and small packages that must be delivered on time to points across the globe. FedEx isn't always aware each day how many packages it must deliver, according to David Kevern, vice president, worldwide services at FedEx services.
These sometimes scheduled but often unplanned pick ups and deliveries put FedEx and the other major logistics services providers like UPS and the U.S. Postal Service at the center of the U.S. economy. It's not a stretch to say they even take the pulse of the global economy.
Any decline in sales expectations at these companies that is not a result of operational missteps should be a warning sign to the rest of the economy. Electronic companies especially need to be cautious because the industry has the unhealthy habit of not picking up the signs of a market decline until months after the first telltale signs appeared.
Information technology industry executives and analysts are still operating on the basis that the market is expanding strongly still. This optimistic outlook is based on the false premise that a good second quarter implies continued strength in demand. That is not necessarily the case. It's a rearview image that is more indicative of what has passed than what is coming down the pike.
Right now, we are seeing wild gyrations on the equity market fueled by speculative buying and selling. In the meantime, the market is ignoring signs of consumer fatigue, the extreme weakness in the housing market, tight lending conditions at banks, high consumer debts, the weakness of the U.S. dollar and high energy costs that's cutting deep into disposable income.
This is the time electronic companies will start ramping production for seasonally strong end-of-year sales. Don't over do it. Actual demand may not match the current rosy forecasts for second half sales and only the wary companies will dodge the inventory indigestion that is sure to arise in the first quarter of 2008.
"While the U.S. economy is growing at a moderate pace, recent financial market volatility and high energy costs have increase the uncertainty surrounding the near-term economic outlook, and weakness in the housing sector continues," said Alan B. Graf, Jr., FedEx's CFO, in a statement.
Listen to him. This is the guy who must plan daily how to move the known, the unknown and the unknowable. That sneeze is coming from deep within the economic supply chain.