The U.S. stock market fell out of bed Tuesday. The Dow Jones Industrial Average lost nearly 250 points in its first hour of trading, and was muddling along down 170 points midday. The main culprit? Poor earnings reports and chastened outlooks delivered by large, multinational firms, like 3M, the large manufacturer, and UPS, the global delivery service.
The action on Wall Street Tuesday highlights a larger truth about the U.S. economy and its markets at this moment in time. As we’ve noted before, these days it seems that American consumers are from Mars, while global business is from Venus.
That represents a 180-degree from the state of affairs in 2009 and 2010. Then, companies whose fortunes were tied to the U.S. consumer were getting the tar beaten out of them. Consumers, traumatized by crushing declines in the housing and stock markets and massive job losses, began saving, hoarding, and generally spending less. At the same time, regions that had escaped the subprime crisis—Latin America, China, India, sub-Saharan Africa—continued to power ahead. So as small businesses that catered primarily to U.S. consumers suffered, multinationals that got most of their business from overseas found a steady source of orders, demand, and markets materializing out of nowhere.
But a few years later, the shoe is increasingly on the other foot. American Consumers may not be partying like its 2006, but things have been moving steadily in the right direction. The job market is improving, with more than 4 million jobs added since early 2010. Consumer confidence, as measured by the University of Michigan, is at a five-year high. Financial failure is down across the board, as consumers are generally doing a better job keeping up with financial obligations. And as regular readers of this space should know by now, housing is back. Sales, construction activity, and prices are all higher through the first nine months of 2012 than they were in the first nine months of 2011. So it’s no surprise that retail sales continue to rise and that the National Retail Federation expects holiday sales to rise a healthy 4.6 percent in 2012. (Amazon.com’s stock was up on Tuesday.)
As for global business, that’s another story. The giant companies with operations around the globe that are now finding their dependence on overseas markets for growth is problematic. Even though the worst of the sovereign debt crisis seems to have passed, the euro zone—the wealthiest single entity outside the U.S.—is in recession and doesn’t have much prospect of growth. China, the motor of the world’s economy, is showing signs of slowing down. In the third quarter, China grew at a 7.4 percent annual rate—the lowest such number it has posted since early 2009. India is shifting into a lower gear. Simply put, the volume of goods, services, and people whizzing around the globe is still rising—but at a slower rate than previously thought. The IMF in September reduced its estimate for trade growth in 2012 from 3.7 percent to a mere 2.5 percent. (In 2011, global trade grew 5 percent.)
And so the news from large corporations has been generally dispiriting for the last few months. IHS iSuppli earlier this month reported that global PC shipments are expected to fall in 2012 for the first time since 2001. That’s bad news for companies like Intel, Microsoft, Hewlett-Packard, and Dell. Equipment maker Caterpillar on Monday reported a solid quarter(PDF) but dialed down expectations for 2012 revenues and profits due to “global economic conditions that are weaker than we had previously expected.” Chemical giant DuPont on Tuesday morning reported disappointing earnings.
All of which means the U.S. domestic economy is now doing better on a relative and absolute basis than many of its global peers and rivals. UPS’s earnings report was one of the reasons the stock market fell early Tuesday. But look closely inside the company’s earnings. It shows the dichotomy. The company’s U.S. business revenues rose a bit from the year-ago quarter, and average daily volumes rose nearly 4 percent. In international operations, by contrast, revenues fell nearly 4 percent and daily volumes were flat.