Ben Bernanke said that the recession is over, but what he thinks isn’t important. The more important arbiter of the business cycle, Federal Express, reported its earnings last week. Profits were down 53% from the year prior. Profits were expected to be down, but they did not fall as much as expected. That’s because FedEx is seeing improvement in its freight and ground-shipping divisions. That means that the economy seems to be turning around, because FedEx’s performance is a leading economic indicator.

People ship items because they have received orders for them. The freight business in particular represents shipments between suppliers and manufacturers and then between manufacturers and retailers. The primary measure of economic growth, gross domestic product, measures the total amount of goods and services in the economy at the consumer level. That avoids double-counting, but it also means that producer activity will show changes before the GDP does.  That’s why the FedEx news is so exciting. If manufacturers are starting to order materials, then they must be seeing demand. If so, the recession that officially began in December of 2007 may finally be ending.

FedEx’s financial results will be a measure of economic performance as the business cycle unwinds. Overnight shipping via a private carrier is a luxury. The United States Postal Service has cheaper rates; it costs just 44 cents to send a first-class letter from Maine to Guam, although it probably won’t arrive the next day.  An increase in spending on FedEx indicates not only an improvement in the economy, but also a willingness to spend more for better service. (more…)