Two Hidden Economic Indicators

Photograph Andrew Harrer/Bloomberg

A FedEx Boeing Co. 757 cargo jet at Ronald Reagan National Airport in Arlington, Virginia.

Corporate America provides gems of economic wisdom in the routine business of doing business. The hidden indicators this week suggest the lackluster growth may be a long-term phenomenon.

First, FedEx has decided to retire 24 more jets.

The world’s largest cargo airline has seen a drop in volumes in the FedEx domestic Express division — a 4 percent fall in average daily package volume in Express in the fiscal third quarter alone.

These airplane cuts are on top of what the company was already figuring to take out of service. CEO Fred Smith grounded five planes last quarter and planned to cut 21 more in the 2013 fiscal year. FedEx had 688 aircraft as of Feb. 29, including 397 jets.

David Ross, a Stifel Nicolaus analyst, told Bloomberg’s Natalie Doss that he doesn’t expect growth in domestic volumes for “the next several years.” That means FedEx doesn’t expect a big rebound in the products that retailers, manufacturers and consumers are shipping around the U.S.

It may get worse from there. It’s getting more expensive for businesses — even investment-grade businesses — to borrow money. Bond investors are demanding, and getting, more compensation for risks they take. Even with cash on corporate balance sheets near record highs.

Bloomberg’s Sarika Gangar says borrowers are offering the biggest concessions since the start of the year to sell new corporate bonds in the U.S.

Part of that is turmoil in Europe, but a piece of it is all of the signs that America’s economy is weakening. Investment-grade companies paid an average of 21 basis points more in relative yields in the two weeks ended June 1 than investors accepted for their outstanding bonds with similar maturities, according to Barclays Plc.

When you combine Europe “with some of the economic numbers, underscored by the employment report on Friday, when you’re looking to put money to work in the corporate arena, there probably needs to be a concession due to the uncertain situation,” according to Kevin Flanagan, chief fixed-income strategist for Morgan Stanley Smith Barney.

When the bond market sees risk among stable, cash-rich companies, that’s not a good sign for the weeks ahead.

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