Caterpillar’s second-quarter earnings report, which has Wall Street abuzz this morning, is a fascinating document. It’s fascinating in part because Caterpillar, a large Midwestern manufacturer whose factory workers are represented by the United Auto Workers, turned a profit for the quarter ($371 million, down from $1.1 billion in the same quarter a year ago, but still, compared with the GMs and even Fords of the world, it’s pretty great). And it’s fascinating because the notes of hope in the report virtually all stem from the “developing” world. A sample:
– Prospects for recovery look firmest in Asia/Pacific. China quickly
reversed its tight monetary policy and launched a massive stimulus
program. Both money and credit growth reached record highs, and
growth in industrial production has already improved. Commercial and
residential building sales, which declined last year, have turned up
sharply, and selling prices have increased. …
– Sharp interest rate cuts in India started a recovery in industrial
production, and mining output appears to have turned up. Industrial
production is again increasing in Indonesia, Malaysia, Thailand,
Singapore and Taiwan. …
– Latin American economies also seem to be mending. Brazil, the
region’s largest economy, cut interest rates, and industrial
production started to improve in the second quarter. …
It’s the story of the BICs (for Brazil, India, China), which I wrote about in my column a few weeks ago. Those three countries seem to hold the key to whether the global economy will recover in a robust way or just sputter along for the next few years. And Caterpillar, more than almost any other U.S.-based company, is poised to benefit if the BICs do boom. It actually exports stuff (construction equipment and engines, to be precise), in a big way. The U.S. economy could use a lot more of that.
Caterpillar’s story is also, to be honest, the tale of a company that effectively broke the UAW during a strike back in the early 1990s. Its U.S. workers are still unionized, but Caterpillar has been able to force them to share the recessionary pain in a way that unionized workers at the Detroit Three until recently did not.
Finally, Caterpillar’s story offers a little bit of insight into the stimulus debate in the U.S. From the Q&A near the end of the earnings release:
Q5: Are you starting to see any sales improvement linked to the U.S. stimulus package? Do you expect to . . . and when?
A: Our expectation has always been that the package would have a fairly limited impact on 2009, with most of it occurring in the second half. Most funds have been allocated, with highway paving a major beneficiary. However, actual expenditures, which occur as work is finished, have been fairly small. Highway contracting has improved in recent months, and we project that infrastructure construction will improve in the second half.