FedEx shares were down sharply on September 5, following the company's announcement that its next earnings report is likely to be below previous expectations. Bad news for FedEx shareholders, and probably for the company's employees -- but what's this doing in an article about savings accounts?
It so happens that FedEx is no ordinary stock. The company's characteristics make it an especially good bellwether for the economy. This matters to savings account customers because savings accounts and other deposits desperately need the economy to perk up in order for interest rates to rise. Based on the cautionary announcement from FedEx, it may still be a long time before that happens.
The significance of FedEx
Here are four reasons why the FedEx's performance may be an indicator for the economy:
- It is consumer-sensitive. Consumer spending represents the majority of economic activity, so changes in consumer behavior can be clues to whether the economy is gaining or losing strength. While FedEx has significant business-to-business operations, it also does a huge business in residential deliveries, so any weakness in the company's earnings is reason for concern about consumer spending.
- It is an e-commerce beneficiary. Home delivery carriers have been a beneficiary of the transition from traditional location-based retailing to online shopping. If online shopping growth is starting to slow, then conditions may be even worse for traditional retailing.
- It is global. The 220 countries and territories that FedEx delivers to represent 90 percent of global GDP. In other words, FedEx has its finger on the global economic pulse, and it's bad news when that pulse is weak.
- It has an odd fiscal year. Most companies have a fiscal year which coincides with the calendar year, or at least lines up with regular calendar quarters. FedEx, on the other hand, has a fiscal year ending on May 31, so its first quarter ends on August 31. That makes this earnings report one of the first indications of how business conditions have been over the summer.
Three ways for savers to respond
If the upshot of all this is that we are in for an extended period of slow growth and low rates on savings accounts, here are three things savers should do in response:
- Shop for savings accounts with high interest rates. If you were assuming that low rates wouldn't last, it might not have seemed worth shopping around for higher rates. By now, though, it should be clear that low rates have settled in for the long haul, so rate shopping could be well worth the time.
- Increase your saving targets. With slow growth, you'll earn less from savings and investments towards your retirement. The only way to make up for that is to put aside more money each year.
- Revisit all recurring expenses. Belt-tightening can seem like an endless chore, but you can make the biggest difference by focusing on recurring expenses. If you shave something off the bills you pay regularly -- such as cable TV, insurance, or your mortgage -- the difference will start to add up without any further effort.
The economy has been very short of good news this summer. Based on the FedEx warning, it looks as though this fall and winter may be no better.