We don’t have economic data at the moment due to the US government shutdown but some other themes are emerging from the scattered reports we have and a big one is the ‘K-shaped’ economy. This is a theme that’s been unfolding in the background for years and comes to prominence from time to time.<\/p>\n
At the moment, it’s particularly strong because the older\/richer cohorts have benefited from house price inflation and equities while the non-home owning class doesn’t own stocks and is paying higher rents. The wage hikes from the pandemic are now also in the rearview mirror.<\/p>\n
Here is what Fed Chairman Jerome Powell said:<\/p>\n
\u201cOn the K-shaped economy thing, I would say the same thing, or similar thing. We are \u2014 if you listen to the earnings calls or the reports of, you know, big public consumer-facing companies, many, many of them are saying there is a bifurcated economy there, and that consumers at the lower end are struggling and buying less and shifting to lower-cost products. But at the top people are spending, at the higher income and wealth \u2014 so, much, much anecdotal data on that. So, we think there is something there.\u201d<\/p>\n
Here are some telling (and differing quotes) from various executives this week:<\/p>\n
Scott Boatwright \u2013 CEO, Chipotle (CMG)<\/p>\n
\u201cEarlier this year, as consumer sentiment declined sharply, we saw a broad-based pullback in frequency across all income cohorts\u2026 the gap has widened, with low- to middle-income guests further reducing frequency… We\u2019re not losing them to competition\u2026 We\u2019re losing them to grocery and food at home.\u201d<\/p>\n
Ryan McInerney \u2013 CEO, Visa (V)<\/p>\n
\u201cWe are assuming the macroeconomic environment stays generally where it is today and consumer spending remains resilient.\u201d<\/p>\n
\u201cGrowth across consumer spend bands remained relatively consistent\u2026with the highest spend band continuing to grow the fastest.\u201d<\/p>\n
Visa expects a “strong quarter” in Q4 with no material slowdown in holiday sales.<\/p>\n
Caterpillar executive Joseph Creed:<\/p>\n
\u201cNorth America increased 11%\u2026 due to growth in both residential and nonresidential construction… We saw a decline in Asia Pacific\u2026 resulting from softness in a few key subregions… In EAME, we expect growth for the year\u2026 and improving economic conditions in Europe.\u201d<\/p>\n
Caterpillar executive Andrew R. Bonfield<\/p>\n
\u201cWe remain optimistic about our underlying business\u2026 supported by healthy demand signals, including a robust backlog and growth in sales to users.\u201d<\/p>\n
Shane O\u2019Kelly \u2013 President & CEO of Advance Auto Parts:<\/p>\n
\n\u201cTariff-related price increases have accelerated in the auto aftermarket\u2026 we saw some variability in performance as prices moved higher\u2026 there is potential for temporary volatility in sales trends as consumers manage household budgets in an inflationary backdrop.\u201d<\/p>\n
\u201cWe\u2019re keeping an eye on the low- to mid-income consumer\u2026 data points suggest they may be depressing their spend\u2026 subprime auto, consumer sentiment, discretionary spend, credit cards \u2014 and that impacts how they spend.\u201d<\/p>\n
Ryan Grimsland \u2013 EVP & CFO of Advance Auto Parts:<\/p>\n
\u201cQ4 has started off soft\u2026 the DIY channel is seeing pressure with more week-to-week variability in transactions, driven primarily by adjustments in consumer purchasing habits in response to rising prices.\u201d<\/p>\n
\u201cWe\u2019re seeing the consumer impacted across retail\u2026 still trying to parse what\u2019s price elasticity versus other macro factors (e.g., government shutdown).\u201d<\/p>\n
Bill McDermott (Chairman & CEO, ServiceNow)<\/p>\n
\u201cAI is going to reorient the global economy” but also “I was with 150 CEOs\u2026 they were telling me their proof of concepts, these toy sidecars, are getting crushed. They don\u2019t want to do them anymore\u2026 they have so much complexity in their business processes that they\u2019re having trouble making AI work.\u201d<\/p>\n