The S&P 500 and Nasdaq are on the cusp of corrections, but consumer earnings data shows a mostly positive picture.
Mortgage buydowns have helped home sales, but fliers still pay for premium seats and Amazon has hired 250,000 seasonal holiday workers.
"Where do I see softness in [consumer] Credit?" JPMorgan Chief Financial Officer Jeremy Barnum repeated a question from an analyst during the bank's earnings conference. "I don't think there is an answer."
The first report for the third quarter on
Gross domestic product
After inflation, consumer spending grew by 4% per year. This was the highest in nearly two years. September's
Report showed that spending grew almost twice as quickly as the average over the past year. Bill Ackman, a hedge-fund trader and bear, argues that the.
The recession is upon us
As soon as the quarter is over and the market is back in balance
Enter correction territory
Third-quarter earnings data support a view that spending is mostly positive. S&P 500 consumer-discretionary companies that have reported through Oct. 25 saw an average profit gain of 15%, according to CFRA -- the biggest revenue gain of the stock market's 11 sectors.
Sam Stovall, CFRA Research's strategist, said that people are scratching their head and saying "The consumer is doing better than expected." "Consumers have jobs. "Consumers are employed." "They don't appear to be worried about their debt levels."
What is the reason for this? Interest rates on credit cards, cars and houses are all rising.
The real story is told by the anecdotes of bellwether companies in key industries.
Delta Air Lines
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The most expensive seats on sale
fastest. Homeowners using high-interest-rate-fighting mortgage buydowns.
Seasonal workers. The Thursday Report
Sales of Uggs, an established line that is anchored by fuzzy booties, rose 28%. This was a shocking revelation in a clothing market that has seen a stagnant sales climate.
They paint a picture that is largely consistent with the economic data - generally positive but not without flaws. The following are some key findings from the most recent earnings reports of major companies across the market. These data help explain why American consumers and businesses are making the most of the current rate environment.
Mortgage rates: How homebuilders solve the problem
Housing is the industry that is most central to the notion of the market that consumers are falling from the skies.
existing home sales
The peak of the Covid era has dropped by almost 40%. Coldwell Banker is still the owner
Anywhere Real Estate
Builders of new homes have reported good news despite seeing profits fall by half.
Mortgages are the most common type of loans for consumers.
Builders have found ways to avoid the 8% rates of interest that plague existing home sellers. This helps explain why new home sales have been up this year. Homebuilders use money previously used to offer mortgages at 5.75% instead of the 8% rate other mortgages are currently hitting. At
The nation's third largest builder,, helped to drive a 8% jump in third-quarter profits and a 43% increase in new orders for later delivery, which is much better than government reported 4.5% growth in new home sales.
We've redistributed incentives that we previously offered for cabinets and countertops and redirected them to interest rate incentives.
PulteGroup CEO Ryan Marshall stated
"And that was the most powerful thing."
On its earnings call, Pulte said that it set aside $35,000 or 6% of the price for each home as incentives. A portion of the money is used to pay for a mortgage discount. Around 80% to 85% of buyers take advantage of this offer. The company stated that many buyers are splitting funds and combining a lower rate buydown with keeping some goodies for their home.
Wells Fargo economist Jackie Benson stated in a recent report that builders will struggle to maintain this strategy if mortgage rates remain near 8%. However, new-home prices are down 12% over the past year. According to her, builders have an advantage because they offer bigger discounts and incentives than existing home owners.
Price cuts at auto companies are here and will continue.
The September car sales figures were notable.
Increasing by 24% over the past year
The increase in sales is more than double the gain of year-to date. However, they fell short of expectations for the leader in electric vehicles
The high interest rate was blamed by the government, but at
Tesla CEO Elon-Musk said: "I can't stress this enough. For the vast majority of buyers, it's all about the monthly payments."
It's earnings call
"As interest rates increase, the percentage of this monthly payment that is made up of interest will also rise."
It's possible, but it's not the case.
Even if the United Auto Workers strike dampened investor reactions to GM's good numbers.
GM's earnings were better than expected by 40 cents per share. However, shares dropped 3% due to investor concerns about the strike. This forced GM, on October 24, to withdraw its forecast for fourth-quarter earnings. Ford, which reached a settlement with the UAW Oct. 25th, said that the following day, it had "mixed results".
Profits missed Wall Street targets
Due to the strike, consumers came through. As a result, consumers came through.
Unit sales increased 7.7% in the third quarter
Truck and EV sales are both up by 15%. GM CEO Mary Barra stated on GM’s analyst call that despite incentives below industry standards, the company had gained market share.
GM's CFO Paul Jacobson said that despite reports that consumers are less confident, they haven't been reflected in the demand for their vehicles. Ford CFO John Lawler, however, said that car prices would need to drop by $1.800 in order to become as affordable as before Covid. He said that he believes it will happen in 12 to 18 month.
Tesla's turnaround strategy relies on continuing to reduce its production costs, which dropped by $2,000 per car last year. Model Y SUVs can be purchased for as low as $36,490 with federal tax credits, or even as low as $31,500 if you live in a state that offers local tax incentives. This is well below the average price of all cars. Cox Automotive estimates that it's more than $50,000. Musk claims that some consumers are still not convinced. .
Musk stated that "when you compare the Model Y's price to the monthly payments of people due to the interest rate increases, you'll find the Model Y's price is nearly unchanged." "They can't pay for it."
The majority of banks claim that the customer still has cash but not Discover
Ask the banks about consumer balances, as they are released quarterly. Ask the credit card companies how much money they spend to find out if they are confident.
Financial services companies say that consumers do well in most cases.
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Bank of America
Brian Moynihan, CEO of the company, said that consumer balances were still approximately one-third greater than before Covid. At J
The company reported that while balances had declined by 3% over the past year, consumer loan delinquencies decreased during the third quarter.
Where am I seeing softness [in consumer] credit? Jeremy Barnum, chief financial officer, repeated a question from an analyst on the earnings call. "I don't think there is an answer."
The "resilient", however, is still the story of the credit card industry.
In fact, the call on October 26 used this word, or "resilience", eight times to describe U.S. consumer.
Sachin Mehra, chief financial officer at MasterCard, said: "I mean the reality is that unemployment levels are [near] record lows."
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The company revealed that younger consumers are adding Amex Cards faster than any other demographic. The company reported that Amex spending by Millennials and Gen Zers in the U.S. increased 18%.
Stovall commented, "I guess they aren't bothered by the resumed student loan payments."
The biggest fly in the ointment was from
Discover Financial Services
Discover, one of a few banks that have increased their loan loss reserves to cover consumer debts, saw a drop of 33% in profits as Discover's chargeoffs more than doubled.
Discover's chief financial officer John Greene stated on the company's call that despite the fact that U.S. households have debt loads almost identical to those in late 2019 and decreased during the third quarter, government data shows the debt load is nearly the same.
Airlines still show no signs of a recession in travel
Delta Air Lines is enjoying a 59% profit increase in the third quarter, thanks to their most expensive products: first-class seats and vacations abroad. United Airlines is also a good choice, as they offer higher-margin flights.
international travel rose almost 25%
The company plans to increase the number of first-class seats on every flight by seven per trip, starting in 2027. Discounters are not so great.
After reporting a $157 Million loss.
The market continues to 'will' a travel downturn despite daily [government] statistics and our consumer survey results to the contrary. Delta's strong third-quarter performance and its solid fourth-quarter guidance and commentary will finally ease the group about a "cliff" for consumers, allowing them to remove their seatbelts to walk around the cabin," Morgan Stanley Analyst Ravi Shanker wrote in a client note.
United Airlines is adding 20 new planes to its fleet this quarter. However, it will push 12 additional deliveries until 2024. Spirit is delaying its plane deliveries and focusing its attention on the proposed merger with JetBlue, as well as cost-cutting measures in order to remain competitive, especially since demand for their product is still low into the holiday period.
Sundaram stated that as has been the trend for much of 2023 richer consumers, who contributed the largest share of spending, are doing better than families with moderate incomes.
The recession in goods is real
All of them experienced sales problems consistent with macro data.
The trend is well established in the economy. People stocked up during the pandemic on hard goods for their homes, as they were more stuck at home. The shares of all three companies surged during Covid. Since then, growth has been slowed as consumers have moved their spending from travel to other services and other goods.
Sundaram exaggerated to create an effect. "They've been falling down for the past year."
Ethan Allen's sales fell by 24% as the company cited a flood at a Vermont factory, and soft demand among other factors. Whirlpool's second-quarter earnings stated that the company was trying to compensate for a slowdown in sales by selling more appliances home builders. "Discretionary purchases were even softer than expected, due to increased mortgage rates, and low consumer confidence," said CEO Marc Bitzer during Thursday's earnings conference call. Its shares dropped more than 20%.
Amazon's holiday hiring spree of $1.3 billion
Amazon has announced its largest-ever holiday hiring commitment, investing $1.3 billion in the addition of workers, mainly in fulfillment centers.
Amazon's reorganized warehouse network has led to an 11% increase in sales over the past two quarters, as more consumers are turning to the online giant to make their everyday purchases. According to CFRA retailing analysts Arun Sundaram and Arun Sunderam, Amazon tends to cater to a more affluent audience that is more resilient to interest rate increases and inflation.
Sundaram stated that "their retail sales performed really well." Sundaram said that there are still headwinds for discretionary sales but essentials do well.
This all sets the scene for a holiday season that is high-stakes.
PNC believes that a recession will occur in 2024 due to Federal Reserve rate increases. They also believe investors will pay attention to sales of goods, looking for signs of weakness. Amanda Agati, chief investment officer at PNC Asset Management, says that there is a lot to be optimistic about for the final stages of an expansion.
Sundaram's firm, which has predicted that rates of interest will drop soon as inflation falls, believes that retailers are better off, and that their supply chains will be stronger, allowing them to offer more strategic discounts than last year in order to boost sales. Uggs' sales performance was attributed to the improved supply chain and shorter shipping time as the effects of the pandemic fade.
"There is a chance of a decent holiday, even though there are headwinds," he said. However, the inflation from the past two years still hampers the season. "The holiday season of 2022 may have been a low point."