Caterpillar, to coin that well-used phrase, is seen as a bellwether of US manufacturing — which says something for the size of the company’s US presence as two-thirds of its income comes from outside the US.
Caterpillar’s position in this respect has as much to do with how well the firm is run, the quality of management and engineering expertise than is does just sheer size. So quarterly and annual earnings calls are keenly analyzed to see how Caterpillar are reading the markets and positioning themselves for the year ahead.
The Financial Times interviewed Doug Oberhelman, chief executive of Caterpillar, and reported his comments in a brace of articles this week. Worryingly for anyone hoping he would have a clear vision of the year ahead, the tone was wrapped in uncertainty.
“The global economic outlook is more uncertain than at the start of the crisis in late 2008,” the first of the articles leads with. Oberhelman is quoted as saying it was harder to predict what would happen to the global economy over the coming year than at any time in his 37-year career at Caterpillar.
Not that Caterpillar sees the global economy about to collapse; indeed, the firm believes that although 2012 is depressed on balance, they expect 2013 will be slightly better than 2012. The problem is Caterpillar is having just as much trouble as the rest of us understanding which of so many trends will prevail, and crucially what the outcome of the European debt crisis will be.
As Doug Oberhelman said, barring Europe, most big economies looked unlikely to contract this year or next.
It is clear the scale of the slow down in China has shaken Caterpillar. The firm over-estimated the demand for construction equipment, and as a consequence, has run up such massive inventories, it has said it will export 2,300 excavators to other developing markets.
While MetalMiner has been predicting a downturn in China for two years, we can’t say we have got it all right, so maybe we should take some comfort from this. If Caterpillar got it so wrong, the rest of the market can be excused for misreading some of the trends. We would agree with Caterpillar’s reading of the wider market.
In spite of the upcoming election and its outcome, either way the US is very unlikely to drop into a recession, but growth will be slow until housing finally begins to pick up again. In Caterpillar’s judgment, Brazil has bottomed and Chinese growth will pick up yet not to its 2009-11 pace. Caterpillar’s cut back some production capacity in China, but believes the firm’s long-term future depends on sticking to its program of building new factories to serve what it sees as ongoing construction demand.
So, as in so many discussions on the world economy, back to Europe. It would seem we are not alone in struggling to predict the outcome in that troubled region with any degree of confidence.
For firms like Caterpillar, that makes planning even more challenging than usual, but history has shown that come what may, the firm will continue to prosper.