How bad can things really be if Eaton (ETN), a major U.S. industrial company, gives this country a report card that has all A's? What's that report card look like? Consider that CEO Sandy Cutler told us last night that residential construction, non-residential construction, aerospace, trucks and cars are all very strong.
When you think about it, you are talking about a considerable portion of the economy performing well. Housing may only be 10% of the economy, but it punches well above its weight. Eaton's blessing is big there. Non-residential construction is a gigantic form of hiring and Eaton's confirming what we have heard from many regional banks, namely that business has picked up and construction's driving a lot of jobs. Sandy cited the lower oil prices as a principal driver, and while oil has gone up 25% in the last month, it's still way down from where it was.
Autos are a huge force in the economy. Auto sales at these levels, about 17 million units, remain incredibly robust and that's been terrific for retailers AutoNation (AN) and CarMax (KMX). I can't say it is terrific for the automakers because, as you see from the reaction of GM's (GM) stock to its better-than-expected April, it doesn't matter. The autos are uniquely now about Europe, where GM's Opel is performing terribly, and about Latin America, which has fallen off a cliff.
I can't stress enough how much Latin America is hurting American companies doing business there. Brazil and Argentina are just miserable and Venezuela rivals Russia as one of the worst places to do business on Earth. It's no wonder that Clorox (CLX) is one of the few consumer packaged-goods companies that reported earnings greeted positively by Wall Street. It exited Venezuela last year and that's already paying big dividends. Other companies seem to keep hoping that things are going to get better. They are getting worse.
Cutler's view that we could build more than 300,000 trucks this year can only be seen as an extreme positive for the U.S. economy because they don't build them unless they need them. I think his comments are one of the reasons why Cummins (CMI) has been able to shrug off a downgrade and worries about China sales.
Aerospace remains a gigantic driver to the economy, and nothing's changed there except it seems to be accelerating. Again, great news.
In fact, the only area that's been weak, of course, is oil and gas, and Cutler confirmed that the decline in that segment has been a very big net positive for the rest of the economy.
Now, we are largely a consumer economy and you could argue that Eaton's got nothing to do with how the consumer's doing. I say that's just plain false because the consumer's health has to do with hiring and a belief that jobs are plentiful. We know from the employment numbers that they are. Which brings me to the one area of pronounced weakness in the economy that makes no sense to me given these positives: retail. Sure, oil's up big in April. But I think everything else I just went through trumps a bit of a bump in the price of gasoline.
This group's down horrendously. It is time, given the comments we have been hearing broadly about the U.S. economy and specifically from Eaton's Cutler, to recognize that the gloom is overdone for the consumer just because of a slight rise in the price of the pump. Time to pick at your favorites in retail. I think they are putting in a bottom that can hold after a long drought and there are plenty, including the home improvement companies, department stores and big-box retailers, that can now be purchased.