UPS Sheds Leading Indicator Status

The stock market may view UPS(UPS Quote) as a leading economic indicator, but that's not the way the world's largest package delivery company sees itself.

Twice during last month's earnings call, CFO Scott Davis asserted, "We're not a leading indicator," as analysts questioned the relationship between the economy and UPS' lower-than-expected growth projections.

In fact, UPS has been saying for several years that its relationship to the economy has changed as "inventory has been stripped out of commerce," says spokesman Ken Sternad. It's just that not everybody is listening.

"Years ago, the way inventory was ordered and manufacturing was done, there was several months of lead time," Sternad says. "We could see industrial production kicking up to restock inventory in anticipation of upticks in the economy. So we could get a view at least several months in advance of economic activity that was an economic indicator."

But the world has changed. Now, UPS's signature customers include Li & Fung, a Hong Kong-based shirt maker that gets raw materials from throughout Asia, then assembles them and ships the shirts in about a week.

"It's just an example of how tight the supply chain, how compressed it is," Sternad says. "As we talk, 6% of the U.S. GDP and 2% of the world's GDP is in our system. That's a lot of inventory that used to be sitting on the shelves months in advance of the sales cycle."

'Concurrent Indicators'

For its part, UPS rival FedEx(FDX Quote) isn't quite ready to abdicate its identity as an economic indicator.