In order to have an industrial economy you have to build industrial things — roads, ports, buildings, power stations and their grids, airports, houses and shopping centers — and you have to replace them when they wear out. Such building is the activity on which an industrial society rests, the primary source of jobs and all the consequent economic activity that flows from people with jobs. What every one of these building projects needs, in addition to capital and workers, is heavy machinery. That is why the health of Caterpillar, the world’s dominant manufacturer of heavy equipment, and to a lesser extent England”s JCB, are taken as precursors of the world’s financial health.
It’s bad enough the Caterpillar’s world sales were down 11% year-to-year in August, worse that they have declined by a similar amount every month this year. What is truly awful is that Caterpillar has a string of such sales declines — on average 10% per month — going back almost three years. It’s the longest stretch of sales declines in the history of the company. To those who regard Caterpillar as a bellwether, and it has been reliable in the past, our future is going to be called the Second Great Depression.
The good news is, we’re not alone. In the UK, JCB has just announced it is cutting 400 jobs worldwide in the face of staggering declines in the economies of the countries in which it works. CEO Graeme Macdonald said in a press release, “In the first six months of the year, the market in Russia has dropped by 70%, Brazil by 36% and China by 47%. Parts of Europe are also struggling, with France down by 26%.”
Both of these companies are global operators; both are engaged in creating and maintaining the foundations of the industrial age. Their decline and fall is the decline and fall of the age.
This bull isn’t a dozer, he’s a goner.
[UPDATE: 09/24/15 — Caterpillar today reduced its sales forecast for 2015 by a billion dollars. and announced it will be firing up to 10,000 people in the next few years as part of a desperate cost-cutting program. It is facing, said its CEO, a “convergence of challenging marketplace conditions.”]