Trouble in the Global Economy? McDonald’s, Wal-Mart Say So
Companies / Corporate News Aug 13, 2014 - 03:57 PM GMTGeorge Leong writes: Think all is well—or at least OK—with the global economy? Don’t relax too much, as that doesn’t seem to be the case. As we all know, spending drives economic growth, whether it’s from consumers, businesses, investments, or governments. Without one part or another, there would be added pressure on other areas.
The United States recently saw a strong advance second-quarter gross domestic product (GDP) growth reading that pointed to relatively strong economic growth. But there are other signs that suggest otherwise.
Where I like to look is to the major multinationals and the spending on their goods in the global economy.
A pretty decent barometer on the global economy is consumer spending in restaurants, especially with fast foods.
Fast-food heavyweight McDonalds Corporation (NYSE/MCD), for instance, is struggling to find growth in the global economy, and that’s because spending from the other 99% is stalling.
The maker of the Big Mac announced that its comparable sales for its stores in the global economy fell 2.5% in July. The decline was highlighted by a 3.2% drop in the U.S., along with a massive 7.3% plummet in the Asia/Pacific, Middle East, and Africa (APMEA) regions. Only Europe edged slightly higher.
In its second quarter (ended June 30, 2014), McDonald’s reported a 1.5% contraction in its comparable sales in the U.S.
The reality is that the numbers clearly suggest a continued struggle to lure customers into stores. This is significant, as McDonald’s is a big buyer of products, such as beef, milk, chicken, and vegetables, so a decline in sales in the global economy means less demand for these products. This would translate into declines in these sectors across the global economy as well.
Another tell-tale indicator that things in the global economy may not be progressing as many expect—or to the degree many are hoping for—is Wal-Mart Stores Inc.’s (WMT) continued struggles for sales. The company has more than 2.2 million employees, so its difficulties are meaningful, as they could lead to mass lay-offs and, subsequently, less spending.
Wal-Mart operates in 27 countries, so it’s a decent barometer on how well the economy is faring globally. For the 13 weeks ended May 2, sales for Wal-Mart declined 0.1% in the U.S. and a more worrisome 0.8% in the global economy.
The bottom line is: perhaps the global economy is not as secure as many think. To guard against potential economic stalling on a global scale, you may want to consider adding to your portfolio some put options on exchange-traded funds (ETFs), such as the iShares Global 100 (NYSEArca/IOO) or iShares Global Consumer Staples (NYSEArca/KXI).
This article Trouble in the Global Economy? (McDonald’s, Wal-Mart Say So) was originally published at Daily Gains Letter
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