Looking at companies as economic indicators

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It is very common for analysts, economists and traders to look at the performance of some very large companies as an indication of the greater economy. The old saying used to be: “as GM goes, so goes the economy”. This was more accurate before the turn of the 21-century when GM was very big and powerful in the U.S. manufacturing sector. However, there are other companies that people look to now for similar indications.

Companies like FedEx, Goldman Sachs and Best Buy are looked to not only for indicators of their own sectors, but for the entire U.S. and sometimes global economy. There is a lot of logic behind this notion of course. FedEx is a huge shipper of goods around the world and if they have low figures then it could mean that businesses are shipping less and thus, doing less business. Also, if Best Buy is seeing higher than expected sales than it could mean that consumers are feeling better about the economy and their financial situation and thus, are doing more shopping for electronics.

However, this strategy can also be misleading. It ignores a very important factor which is that perhaps the company is doing something right or wrong. For instance, I have used FedEx in the past and on more than one occasion they have sent my shipment to a completely wrong location. In fact, one time the shipment went to Newfoundland on the Canadian east coast when it was destined for Las Vegas, Nevada. For this reason, I am still hesitant to use them and prefer other companies (not UPS, they usually aren’t much better).

Since these companies are so big, experts just assume that most people will use them and they are consistent in their operations. Well, remember that saying I mentioned above about GM? Well that was popular in the past when GM was number one in the industry. Tell me, how did that work out?