Tuesday, August 5, 2014

Good News for Boeing, FedEx and UPS

A few news reports might have led Foolish investors to scratch their heads with confusion recently. On the one hand, the U.S. trade deficit came in lower than expected in May -- indicating good global growth. On the other, it was reported that the managing director of the IMF, Christine Lagarde, was signaling a cut in the IMF's global growth forecasts. Although, the two events appear contradictory, there is actually an explanation, which sees a positive outcome for companies like United Parcel Service, FedEx , and Boeing.

U.S. trade deficit lower
The drop in the U.S. trade deficit to $44.4 billion in May, was somewhat lower than most economists had forecast, and turns out to be a good indication of U.S. growth for three reasons. First, exports grew to a record high -- suggesting that international growth will aid U.S. GDP growth in future quarters, as American companies export more. Second, nonpetroleum imports also hit a new high -- an indication that U.S. domestic demand has picked up. Third, the reason that the deficit fell, partly because net imports of oil fell, this is a good sign because it indicates that the U.S. is moving toward self sufficiency in energy production.

The following chart demonstrates the U.S. trade deficit, and the impact of falling net oil imports:

US Trade Deficit Chart

Moreover, a snap-back in U.S. growth is only to be expected following a weather-affected first quarter in North America. All told, the strength in export demand is a positive sign, and augers well for logistics and shipping companies like UPS and FedEx.