UPS, one of the best barometers of U.S. economic growth along with FedEx, confirmed what the tea leaves were already signaling to investors: The economy is slowing and there may be more short-term pain ahead.
"I'm treating it like a challenging volume and macro environment. We had expected to have modest recession-like conditions in the first two quarters of the year. I would tell you the first quarter, I expect to be the most challenging" Brian Newman, chief financial officer for UPS, told FOX Business.
As a result, the delivery giant forecast full-year revenues of $97 billion, down from its $99 billion previous target.
UPS shares are off 7.3% through the first quarter, compared to the S&P 500's 1.5% drop.
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FedEx last month announced consolidation plans across several units, including FedEx Express and FedEx Ground. In March, the delivery company also noted demand weakness but boosted its fiscal outlook partly due to "cost actions," according to the company.
Following the update from UPS, an advanced read on gross domestic product (GDP) in the first quarter rose just 1.1%, down from 2.6% in the fourth. The second-quarter, underway now, ends June 30.
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With the slowdown comes an uptick in job cuts. Disney and Amazon began laying off thousands of employees last week as part of previously announced plans. Lyft, Gap and First Republic have joined a growing list of companies shedding workers.
Next Friday, the jobs report for April is expected to show a drop in new jobs with employers adding 136,000 positions, down from 236,000 the prior month. The unemployment rate is expected to tick up to 3.6% from 3.5%.
The Federal Reserve on Wednesday is expected to raise interest rates by 25 basis points, which would bring the benchmark lending rate to between 5% and 5.25%, as tracked by CME’s FedWatch Tool. This will mark the 11th straight interest rate hike in the Fed's battle to bring down inflation.
As for UPS, Newman continues to practice agility to navigate the slowdown by managing worker hours against softer volume, consolidating which buildings packages flow through, and being disciplined with pricing. Despite the challenges, he does see a light at the end of the tunnel.
"The good news is we've seen volume stabilize in the month of April. So, I think some of the macros and volume is sort of is hitting a low in the second quarter. I would expect volume growth to rebound relative to the second quarter in the second half of the year" he added.
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UPS, which is the country’s largest employer of Teamsters, is currently negotiating the next multiyear union contract, which is expected to be complete by Aug. 1.
