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Let’s take a moment to consider what we have been hearing from consumer companies recently.
On the one hand, we have Delta (DAL) last week striking a strong tone on forward bookings after it whiffed on earnings estimates. Judging from the commentary by the airline’s top execs, consumers have already plunked down a pretty penny to take a vacation or two this summer.
Then there is specialty apparel retailer Express (EXPR), which plunked down $75 million a week ago to buy Bonobos from Walmart.
It’s hard to imagine Express CEO Tim Baxter, a veteran merchant and frequent guest on Yahoo Finance Live, would sign off on that type of transformational deal if he thought a recession was going to rip through the crucial back-to-school and holiday shopping seasons.
That’s the positive. Now to the negatives — and there are a lot of them.
The latest retail sales report was straight up bad — no punches pulled.
Appliance sales were under pressure. Sales at general merchandise stores were under pressure. Department store sales were under pressure. Taken together, the retail sales report shouted loudly that the consumer is under increasing stress.
“People are being cautious,” Levi’s long-time CFO Harmit Singh said on Yahoo Finance Live (video above). The jeans maker called out a hearty increase in its inventory levels year on year, in part due to consumers shopping more conservatively.
Buried inside the earnings reports of JPMorgan (JPM), Citi (C), and Wells Fargo (WFC) are more moderate paces of growth in debit and credit card spending. Results in big-ticket categories such as autos and housing were soft at the nation’s biggest banks too.
Wells Fargo CFO Mike Santomassimo told me on a media call that “given the pace of rate increases, we see some slowing in the economy happening.”
That vibe was felt in the poor results out of auto retailer CarMax (KMX) last week as well.
You can also see these spending concerns being baked into the stock prices of well-known consumer companies.
Shares of Macy’s (M), Dollar General (DG), Abercrombie & Fitch (ANF), and Nike (NKE) have all underperformed the S&P 500 in the past three months, according to Yahoo Finance data. Macy’s has felt the largest drop, falling 23% in three months’ time.
“The problem for many investors right now is that it’s still possible to construct fairly divergent narratives about the economy depending on which series you look at,” Deutsche Bank strategist Jim Reid explained in a client note. “On the one hand, an array of leading indicators are pointing to a U.S. recession over the coming year. For instance, yield curves have inverted, temporary jobs are declining, and on previous occasions when the Fed have hiked this fast and this quickly, a recession has followed shortly afterwards.”
“But if you wanted to take the opposite view,” Reid added, “you could point to unemployment around its lowest in decades, a high level of vacancies by historic standards, financial markets that have mostly shrugged off the SVB-related turmoil by now, along with growing signs that inflation is softening and the Fed are nearing a pause in their rate hikes.”
Mixed signals, no doubt.
Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations or anything else? Email [email protected]
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Source: https://finance.yahoo.com/news/consumers-are-sending-very-mixed-signals-about-the-economy-morning-brief-130049614.html