The United States recently saw a strong advance second-quarter gross domestic product (GDP) growth reading that pointed to relatively strong economic growth. But there are other signs that suggest otherwise.
Where I like to look is to the major multinationals and the spending on their goods in the global economy.
A pretty decent barometer on the global economy is consumer spending in restaurants, especially with fast foods.
Fast-food heavyweight McDonalds Corporation (NYSE/MCD), for instance, is struggling to find growth in the global economy, and that’s because spending from the other 99% is stalling.
The maker of the Big Mac announced that its comparable sales for its stores in the global economy fell 2.5% in July. The decline was highlighted by a 3.2% drop in the U.S., along with a massive 7.3% plummet in the Asia/Pacific, Middle East, and Africa (APMEA) regions. Only Europe edged slightly higher.
In its second quarter (ended June 30, 2014), McDonald’s reported a 1.5% contraction in its comparable sales in the U.S.
The reality is that the numbers clearly suggest a continued struggle to lure customers into stores. This is significant, as McDonald’s is a big buyer of products, such as beef, milk, chicken, and vegetables, so a decline in sales in the global economy means less demand for these products. This would translate into declines in these sectors across the global economy as well.
Another tell-tale indicator that things in the global economy may not be progressing as many expect—or to the degree many are hoping for—is Wal-Mart Stores Inc.’s (WMT) continued struggles for sales. The company has more than 2.2 million employees, so its difficulties are meaningful, as they could lead to mass lay-offs and, subsequently, less spending.
Wal-Mart operates in 27 countries, so it’s a decent barometer on how well the economy is faring globally. For the 13 weeks ended May 2, sales for Wal-Mart declined 0.1% in the U.S. and a more worrisome 0.8% in the global economy.
The bottom line is: perhaps the global economy is not as secure as many think. To guard against potential economic stalling on a global scale, you may want to consider adding to your portfolio some put options on exchange-traded funds (ETFs), such as the iShares Global 100 (NYSEArca/IOO) or iShares Global Consumer Staples (NYSEArca/KXI).
This article Trouble in the Global Economy? (McDonald’s, Wal-Mart Say So) was originally published at Daily Gains Letter
