“Credit usage is going up”

Have a great Thanksgiving, //www.youtube.com/watch?v=XhvgqSyWZA0

As we’ve been bombarded with Fed heads over the past 3 weeks since the last FOMC meeting, I doubt we’ll read anything new in the laundered minutes that will be released today at 2pm est. 

Here were some important quotes I gleaned from the retail earnings calls yesterday:

Best Buy,

“The promotional environment continues to be considerably more intense than last year. Like Q2, the level of promotion in Q3 was similar to pre-pandemic levels and, in some areas, was even more promotional as the industry works through excess inventory in the channel, as well as response to softer customer demand. From a merchandising perspective, we saw y/o/y sales declines across most product categories.” 

And as we’ve heard from many other retailers, “As I step back at the highest macro level across retail, each customer is making trade-offs, especially with the significant impact of inflation on the basics like food, fuel and lodging. This disproportionately impacts lower-income consumers as a much larger proportion of their spend is on those basics. Across consumers, we can also see that savings are being drawn down and credit usage is going up. And value clearly matters to everyone…and we have repeatedly referred to the impacts of the current macro environment on consumers as uneven and unsettled.” The bold is mine.

Dollar Tree (now $1.25 Tree),

Just as Target said sales tailed off at the end of their quarter, “Importantly, at both Dollar Tree and Family Dollar, we saw an acceleration in comp performance throughout the quarter, with October being our strongest month.” 

“We expect to see continued pressure across both segments related to the inflationary cost environment and merchandise mix as our consumable sales are expected to continue outpacing discretionary.” 

“The economy continues to pressure middle and low household income customers, resulting in needs based purchasing…We are cycling advance child tax credit payments, which were distributed mid-month from July to December 2021. On a y/o/y basis, we are facing higher costs from suppliers related to this inflationary environment.”

“We’re seeing private brands now for 39 weeks in a row have outpaced national brands…And then we’re seeing first in a month business is getting stronger. We’re seeing our SNAP and food stamp business is growing. And we continue to see credit is outpacing debit. So, we do see the shift in the customer coming into our segment.” The bold again is mine.

Nordstrom (with a broader mix of customers including tthe higher end),

“Across both banners (2nd being Nordstrom Rack), the softening trend was more significant in customer segments with the lowest income profiles, while we saw greater resilience in the higher income cohorts.” 

Something we heard from another retailer last week, “Additionally, sales decelerated in late October and early November, particularly in geographies with unseasonably warm weather. In the last two weeks, however, sales trends have improved…We’re also on track with our plans to clear through excess inventory and optimize our product mix.” 

In terms of that mix, “Men’s and women’s apparel, shoes and designer had the strongest growth in the quarter versus last year. Customers continue to shop for occasions and return to the office and update their closets. We continue to see softness versus last year in categories previously accelerated by the pandemic, including home and active.”

“Importantly, we expect to have healthy and current inventory by the end of the year.” 

With another fall in the average 30 yr mortgage rate to 6.67% vs 6.90% last week and vs 7.14% in the week before, mortgage apps rose 2.2% w/o/w. Within that, purchases were higher by 2.8%, up for a 3rd week but still down 41% y/o/y. Refi’s rose 1.8% w/o/w but are lower by 86% y/o/y. No need to add anything here. 

The Reserve Bank of New Zealand hiked interest rates by 75 bps to 4.25% as expected. They said, “The Committee agreed that the OCR (Official Cash Rate) needs to reach a higher level, and sooner than previously indicated, to ensure inflation returns to within its target range over the medium term…Core consumer price inflation is too high, employment is beyond its maximum sustainable level, and near-term inflation expectations have risen.” This is the first time since the RBNZ has raised by 75 bps since the OCR began in 1999 and they haven’t seen this high a rate level since 2008. While the rate hike was anticipated, the reality of the sharpest rate increase seen, the 2 yr yield spike higher by 19 bps to 4.58%. The NZD is up by .3% vs the US dollar.

Ahead of the US PMI at 9:45am est from S&P Global (and after the negative print in yesterday’s Richmond manufacturing survey), Australia’s November composite index weakened further to 47.7 with services down to 47.2 and manufacturing, while staying above 50, slipping to 51.5 from 52.7. This is the 2nd straight month with a below 50 print, “faced with deteriorating demand conditions” with the service sector in particular “affected by higher interest rates and capacity constraints.” Australia’s economy is also going to ebb and flow with the price of commodities and China’s business activity. 

The November Eurozone PMI rose .5 pt but is still below 50 at 47.8. The estimate was for a drop to 47. The services component was unchanged at 48.6 while manufacturing rose almost 1 pt to a still weak 47.3. The reasons for the overall uptick was a “reduced rate of loss of new business, fewer supply constraints and a pick-up in business confidence about the year ahead.” Also, “Warm weather has also allayed some of the fears over energy shortages in the winter months.” But, “Business sentiment nevertheless remained gloomy by historical standards, and demand continued to fall at a steep rate, leading to a pull-back in employment growth during the month.” Prices pressures softened within manufacturing. 

The UK PMI was little changed at 48.3 vs 48.2 in October and that too was just above the estimate of 47.5. The UK will likely see another contraction in Q4 GDP and “Forward looking indicators, notably an increasingly steep drop in demand for goods and services, suggest the downturn will deepen as we head into the new year.” While business confidence has ticked up, “the business mood remains among the gloomiest seen over the past quarter century amid the numerous headwinds, which include the cost of living crisis, the Ukraine war, steepening export losses (often linked to Brexit), higher borrowing costs, fiscal tightening and heightened political uncertainty.” 

For those that tossed Liz Truss to the gutter, I’d love to hear how the UK is now better off with all the higher taxes, particularly with the corporate rate going to 25% from 19% just as London is competing with the European continent for business. 

The market responses to the European PMI’s is not much with both bond and stock markets mixed. Both the pound and euro are higher vs the dollar.