Friday, January 25, 2013

What U.S. Slowdown? Business Is Booming

The U.S. may be reclaiming its job as the global growth engine.

Carmaker Ford(F), package-delivery company UPS(UPS), chemical maker DuPont(DD) and consumer-goods firm 3M(MMM) all said their U.S. businesses picked up in the third quarter while international growth slowed.

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Caterpillar(CAT), the world's largest maker of construction equipment, forecasts that growth in China will continue to wane, and the U.S. will improve. U.S. aircraft company Boeing(B), which reported third-quarter results today, foreshadowed this shifting trend already in 2010. China and other emerging economies, with a cheap labor force and rising middle classes, have buoyed the global economy over the past few years, taking over America's role. But China, which surpassed Japan as the world's second-largest economy, is no longer the go-to manufacturing hub for the developed world's companies as costs have risen. Companies including General Electric(GE), Master Lock and Boeing have returned production to the U.S. from China for reasons ranging from quality, reliability and technology piracy. Even German carmaker Volkswagen and South Korean electronics company Samsung are investing in U.S. operations. Given that the North American segments are the largest source of sales at DuPont, Caterpillar and other bellwether companies, investors may be undervaluing their stocks, discounting them on expectations for slowing growth in the U.S. However, with a sales shift emerging, it may be worth considering buying their shares. Price-to-earnings ratios for those companies are 2 to 4 percentage points lower than where they were at the end of 2007, which marked the start of a recession.Still, that doesn't suggest outsized growth for the U.S. economy is on the way. But it means the U.S. economy is more vibrant than investors and even economists think, while the rest of the world braces for a slowdown. All told, economists expect Asia/China's growth to slow over time, though it will still outpace that of the U.S., which is expected to expand at a modest rate. Looking over the past four quarters, Ford, UPS, DuPont and 3M reported at least a 25% slowdown in international sales growth compared with a year earlier.There was more evidence of a U.S. rebound today. Orders for U.S. durable goods, such as machinery equipment, increased by the most in six months in September, supporting the notion that manufacturing is on the rise. Excluding transportation equipment, durable-goods orders jumped 1.7%, four times the pace of analysts' estimates. Ford today said unit volume growth slowed -- to 8.4% in the U.S. from 11.7% last quarter and to 4.4% in Asia from 8.1%. It's the second quarter in a row that Asian growth trailed that of the U.S. UPS reported decelerating volumes internationally due to fewer packages moving from Asia to the U.S., leading to annual capacity reductions of about 10% from Asia. CEO Scott Davis said there's "increasing uncertainty in the global economic environment. Most notably exports from Asia which slowed significantly during the quarter." Caterpillar last week revealed guidance for 2012 that assumes growth in China will continue to slow (from 9.4%) and for U.S. growth to quicken. A Bloomberg survey of economists show that estimates for U.S. GDP growth is 2.0% in 2012 from 1.7% this year. While modest, it's still growth. 3M is struggling from the weakness in electronics end markets, but, importantly, noted on its earnings conference call that it's managing the declining utilization levels at factories in Asia as demand wanes. DuPont has a different position -- it's bullish on Asia -- but has concerns about runaway inflation and a higher currency.

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