NAMP: Signs of economic recovery continue

by Bryan Salvage
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CHICAGO — One topic meat processing and allied-industry attendees wanted to learn more about during last week’s North American Meat Processors Association’s Meat Industry Management Conference in Chicago, was the state of the industry.

Increasing US meat and poultry exports and rising disposable incomes in developing countries were among several positives mentioned in meeting rooms, while tough and too many government regulations, record-high commodity costs and continually rising fuel costs were among the negatives brought up.

Expectations for GDP growth in the first quarter have increased significantly over the past month as payroll tax cuts and improving economic fundamentals have provided a stronger foundation for sustained growth, according to “Eye on the Market,” a session presented by Jim Rapp and Justin Klestinski, vice presidents of J.P. Morgan Investment Banking.

“We are expecting 2011 GDP growth between 3.0-3.5%,” they said. “Low real interest rates and positive trends on consumer spending continue to provide support for these estimates.”

The labor market is slowly recovering, they added. Initial jobless claims have fallen off significantly. While job growth has yet to show any considerable pick-up, small business hiring surveys have improved in recent months. Although the unemployment rate has fallen sharply, much of the decrease stems from workers leaving the labor force rather than a dramatic increase in employment. “We believe the labor markets will continue to heal over the next several months,” they said.

Despite a slight uptick in prices, retail sales remain strong. Nominal levels have now surpassed the 2008 peak, they said. Consumers recently appear more willing to spend, particularly within the most affluent segment.

Retail sales may continue to expand as consumers become more assured of the strength of the recovery. But as the global economy gets back to normal and with real policy rates close to zero around the world, the focus is shifting back to potential inflation concerns. In the US, Europe and China, however, core inflation is quite low with all experiencing year-over-year rates of below 2%.

“As we move into 2011, consumer spending continues to show signs of strength, which should help support top-line revenue growth and earnings,” both men predicted. “With the majority of companies in the S&P 500 having reported Q4 earnings, approximately 70% have beat both revenue and earnings expectations.”

US corporate sales are at a 50-year low, but US profit margins remain high. Profits, however, are being driven primarily by the lowest labor costs as a percentage of revenue since 1929. Because of the reliance of earnings on low real wages, multiple expansion may be limited.

Some smaller meat and poultry company executives at the meeting said they are looking for more signs the US government will put more policies and programs in place to help them grow their businesses – as well as sustained improvement in the overall economy – before investing more for future growth.
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