Caterpillar Sees ‘Definite Threat’ of US Recession

(CNBC)Caterpillar’s fourth-quarter earnings rose more than 10 percent, helped by strong sales to mining, energy and construction customers outside the United States, but the company warned it sees a recession as a “definite threat” to the U.S. economy.

The Peoria, Ill. company, which is often seen as an economic indicator, said it has been seeing “anemic growth” in the U.S. economy.

Total GDP is domestic demand plus export demand. They are seeing weak growth in domestic demand and strong export demand. And that’s exactly what has been keeping US GDP relatively high and more than making up for the lost output in the housing sector. So far.

“Over time, weakness in the economy has spread from housing to nonresidential construction and more recently to employment and manufacturing,” Caterpillar said in a press release announcing its results. “A recession is defined as a broad downturn in the economy, a development that seems to be taking place.”

However, Caterpillar predicted that fast-growing sales overseas would permit it to meet its 2008 sales and earnings forecasts even if a recession does materialize.

Exactly the same point.

The company continues to expect earnings per share will rise between 5 percent and 15 percent from its 2007 profit of $5.37 a share, while revenue will grow between 5 percent and 10 percent from $45 billion.

Caterpillar predicted 2008 would be another tough year for the U.S. residential housing market — a key customer for its earth-moving machines — and predicted “recessionary conditions to persist” in other key markets.

It said it expected housing starts to decline to 1.1 million units, down from 1.35 million in 2007, and said new problems would roil the property market, including “a high level of mortgage resets, an increase in home repossessions and the likelihood of a significant decrease in home prices.”

They must be watching CNBC.

Overall, Caterpillar is expecting North America to be its weakest growth region this year, but sales should be flat to slightly higher than a year ago.

Flat to slightly higher domestic demand with rising exports isn’t what a recession looks like.


Leave a Reply

Your email address will not be published. Required fields are marked *