With the decline in First Class Mail, businesses in the postal market have become increasingly sensitive to the economy as advertising and parcels generate an increasing share of volume and revenue of firms in the industry. The GDP numbers released today present good news for the postal market. In particular, the numbers suggest:
- The probability of a double dip in the economy drops closer to zero.
- Consumer spending is rising smartly. In the third quarter, consumer real final sales of domestic product increased 3.6 percent.
- Business investment is very strong. Non-defense capital spending grew by 16.7% in the quarter. Businesses capital investments suggests that businesses are making significant investments in the future, so government tax, regulatory and budget policy uncertainty is not deterring business investment.
- Business inventories did not rise in the third quarter which suggests that if consumer spending remains strong in the fourth quarter, businesses could face the need to rebuild inventory. This is good news for jobs (and consumer spending) as the need to rebuild inventory could result in increased hiring.
If these trends hold through the fourth quarter, the postal market could be helped as follows:
- Consumer Spending – increased hiring to accommodate handle consumer spending could further boost consumer spending both on and off line. Higher consumer spending will result in higher levels of consumer advertising including direct mail.
- On line shopping – stronger than expected consumer spending would increase volume and revenue generated from B-2-C shipments for parcel carriers and the Postal Service. Private sector parcel carriers benefit from higher retail sales no matter where they occur, although UPS may be less leveraged to on-line sales than FedEx and the Postal Service.
- Tight inventory – current tight inventory levels could increase the amount of express and air cargo shipments to get parts to factories and finished goods to consumers. The biggest impact on air shipments would be in electronics as Amazon, Apple, HTC, Dell, Motorola, Samsung, Sony, Toshiba, and other makers of smart phones, tablets and other hot items use air transportation to move more inventory to market to meet demand.
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