In another bad sign for the economy this morning, McDonald’s Corporation (NYSE:MCD) announced that its sales were down last month as Europe and China were dealing with debt and grow concerns. Same store sales in the US rose only 4.4% in May, less than forecasted.
The fast food chain has certainly tried to make its menus appeal to all. They now have smoothies, coffee, fruit, etc. Despite McDonald’s effort to come out with a broader menu with more value items as well, the company has warned that they could be taking a sales hit as the world economy struggles to get a solid footing.
In Europe, McDonald’s same store sales grew to only 2.9%, which is lower than analysts’ forecast of 5.3%. A lot of this has to do with the European debt crisis going on. Consumers are saving cash as financial conditions deteriorate. Recession fears are making European firms stop hiring and cut jobs.
In the Asia/Pacific, Middle East and Africa regions, McDonald’s same store sales fell 1.7%, less than analysts’ consensus of 3.2% rise. Most of this has to do with Japan’s slow recovery from the tsunami and China’s slowed growth.
As the world’s largest fast food chain, McDonald’s proves to be a great economic bellwether for determining consumers’ health. As we have seen by the company’s announcement this morning, unemployment and slowed growth are currently big trends in the world economy.
Ben Bernanke and the ECB have sent strong messages this week to their governments and governments around the world: “It’s your turn to fix it”. Essentially, they are saying that they have done all they can do for propping up the economy, now it’s time for governments to do their part. Unfortunately, the US and Europe are in a political gridlock right now as different political parties battle out what the new policies will be to help jumpstart the economy.
As conditions continue to look bleak, we must find indicators such as McDonald’s saying “the world economy is hurting our sales” because these types of indicators are warnings for what could be coming. These warnings will then give us time to turn to more defensive positions in our portfolio to help deflect some of the losses.
The bottom line is that McDonald’s announcement today confirmed our fears of US companies feeling the pinch from Europe and China. Europe continues to struggle with debt, recession fears and unemployment while China is seeing its growth diminish. How far will it go before the world economy truly does get back on track?