Mid-year economic review

Incoming Volvo CE president Pat Olney comments on the company’s Q2 results: “These are a solid set of figures given the significant currency headwinds we faced, and the consequences of the earthquake and tsunami that struck Japan during the period. Due to continued uncertainty in the current macro-economic situation, we are maintaining a high degree of cost flexibility in order to be able to quickly adapt to any potential challenges in market conditions.”

Mining equipment manufacturer Joy Global, which reported its backlog was up 78% at the end of its recent fiscal Q3, is “putting routine expenses under a microscope,” according to Michael Sutherlin, President and CEO. “There are some yellow warnings out there, but we haven’t seen them translate into the fundamentals that we track. We’ve seen no evidence of delays, deferrals or a slowdown of any projects we’re working on.”

In its Q2 2011 earnings release Caterpillar said, “the major developed economies have had weak recoveries, and the frequent discord in developing economic policies offers little hope for improvement in the short term. However, forward-looking economic indicators suggest downturns are unlikely this year. Cat’s outlook assumes developed economies will grow 2% in 2011, down from 2.5% in 2010. Construction remains weak, and only scattered improvements in activity are likely this year.”

I believe the U.S. economy will remain lethargic for the balance of 2011. It may even flirt with a negative GDP quarter. A recession is defined as two negative quarters in a row, but I don’t think we’re in for a double-dip.