Merryn's Blog

What washing machines tell us about the US economy

Despite reporting better than expected profits, Electrolux is to close two of its US factories with the loss of 950 jobs, as consumers continue to retrench.

Many analysts cheered the latest results from Electrolux, the world's second largest manufacturer of electrical appliances. Adjusted operating profits beat targets. But hidden behind that good news was a warning.

Hopeful eyes have been turning east recently as China continues to post strong figures the latest GDP growth rate clocked in at an impressive 8.9%. As China creates new tiers of wealthy consumers, say the bulls, the global economy will continue to strengthen.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

But meanwhile, the primary engine of the boom years the US consumer continues to pull back. Electrolux confirmed as much by announcing the closure of two washing machine factories, employing 950 staff, in Iowa. And that's in spite of the chief executive, Hans Straberg, declaring "almost everything went our way this quarter".

And it's US consumers that ultimately matter. The US contributes over 20% of global GDP (source IMF), and generates well over three times the wealth of China in US dollar terms. If they suffer, we all suffer. Sure, one day that balance will change as China continues to power on. But for now, firms like Electrolux remind us that the world's biggest spenders are still in their bunker. And that spells bad news for the raft of highly cyclical consumer stocks that have surged since March.

Advertisement
Advertisement - Article continues below

So, anyone who is cheered by the latest US figures (third quarter GDP rose by an annualised 3.5%) into thinking we are past the worst, should think again. And stick with quality defensive shares.

Advertisement

Recommended

Visit/519858/how-long-can-the-good-times-roll
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Visit/516944/why-wall-street-has-got-it-wrong-again
Economy

Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019
Visit/504252/brace-yourself-the-global-economy-might-be-healthier-than-it-looks
Economy

Brace yourself – the global economy might be healthier than it looks

Investors have been worried about a global recession since the start of the year. But the latest indicators suggest things might not be so bad. John S…
2 Apr 2019
Visit/502393/the-us-economic-downturn-its-only-a-matter-of-time
Economy

The US economic downturn: it’s only a matter of time

With the US economy facing headwinds from trade wars to slowing global growth, talk of a recession is picking up.
22 Feb 2019

Most Popular

Visit/investments/property/house-prices/600840/the-biggest-risk-facing-the-uk-housing-market-right-now
House prices

The biggest risk facing the UK housing market right now

For house prices to stagnate or even fall would be healthy for the property market, says John Stepek. But there is a distinct danger that isn't going …
17 Feb 2020
Visit/economy/600838/money-minute-monday-17-february-good-news-ahead-for-the-uk-economy
Economy

Money Minute Monday 17 February: good news ahead for the UK economy?

Today's Money Minute looks to a week in which we get the latest employment and inflation numbers, plus retail figures for January and a slew of eurozo…
17 Feb 2020
Visit/currencies/600842/eur-usd-euro-slide-against-us-dollar
Currencies

The euro’s slide against the US dollar looks set to continue

The euro has been in a bear market against the US dollar for two years now. And on a broader scale since 2008. A decline like that is telling us somet…
19 Feb 2020
Visit/investments/stockmarkets/european-stockmarkets/600725/is-2020-the-year-for-european-small-cap
Sponsored

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019