Consumer Spending Declines

Donations to the economy start to dry up as consumer spending falls July 15, 2024 | Peel #750 In this issue of the Peel: - ☹ Donations to the economy start to dry up as consumer spending falls - 🚘 EV stocks are on fire, but Bank Earnings killed the vibe this earnings szn - 🔥 Katy Perry’s Hot N Cold describes June inflation perfectly Big Announcement 📢 The Daily Peel is moving newsletter platforms to help us reach your inbox easier starting on Thursday, July 18th... this means you will no longer be getting our emails from wallstreetoasis@wallstreetoasis.com but from either news@thepeel.co OR [thedailypeel@mail.beehiiv.com](mailto:thedailypeel@mail.beehiv.com). This also means the newsletter will have its own domain at [thepeel.co]( where you can read past issues and subscribe. One way you can help? Reply or click anything in the email starting next Thursday (July 18th) Market Snapshot 📸 Banana Bits 🍌 - Republican frontrunner and former President Donald Trump [survived an assassination]( attempt this weekend at a rally in Pennsylvania... and it’s all anyone has talked about since. Check out the [pic of the century]( (so far): - Google looks to pursue its [largest acquisition ever]( - Elon Musk has had a little too much free time lately, so [now he’s fighting the EU]() - Now that she’s worth over $120mn, the world’s greatest stock trader (Nancy Pelosi) may [finally have to hang ‘em up soon]( Learn From a Pro & Get Tons of Resources Fam, you don't want to miss the WSO Financial Modeling & Valuation Bootcamp. It's an intense 2-day live training by an experienced IB/PE pro who will teach you how to build a strong foundation in Excel modeling, financial statement modeling, LBO modeling, valuation modeling, M&A modeling, DCF modeling and more. You'll learn tips & tricks and common pitfalls to avoid in financial modeling. Plus, you'll get lifetime access to the [Elite Modeling Package,]() which includes courses, templates, guides, and case studies. As a bonus, you'll also get access to the WSO Company Database with tens of thousands of interview insights, salary data points, and company reviews. Sounds awesome, right? But hurry up, it’s this weekend (July 20-21), there are only 6 seats available, and they are selling out fast. Don't miss this opportunity to boost your resume, impress your interviewer, and land your dream job. [Join the WSO FMV Bootcamp]() Macro Monkey Says 🐒 Is That A Bell Toll I Hear? It’s almost like you apes want to cause a recession. I’m over here running up credit card debt like no one’s ever seen in order to keep spending and donating to our beautiful economy. Meanwhile, everyone else is going all “financially responsible” on me? At least, that’s what Bank of America’s credit and debit card spending data suggests. If true, this is worse than any heartbreak I can imagine… So, let’s get into it. What Happened? BofA released its latest Consumer Checkpoint last Thursday, analyzing consumer behavior through spending data on credit and debit cards held at the nation’s second-largest bank. In June, total card spending per household fell 0.5% annually and 0.1% for the month. [Source]( Just put a knife through my heart already. The good news was that spending for the second quarter grew 0.3% annually, but that was mostly due to a strong April. Clearly, we’ve burned through our tax refund checks already if you’re one of those weirdos who actually pays them. We’ve also ostensibly burned through wage gains at the lower end of the income spectrum, contributing to the slowdown in total spending: [Source]() Digging into the data, we can see that spending on services has held up much better than that on goods. That’s ideal, given that services typically account for 65-70% of consumer spending, and 70% of U.S. GDP is consumer spending. However, the decline in spending on goods is still cause for concern. High-income earners are starting to see their wage gains catch up to that of the lower end. Given that wealthier consumers allocate a higher percentage of their spending to services, this could be symptomatic of a diverging economy. This becomes especially clear when we see where much of our current spending is allocated. [Source]( The ongoing travel boom is probably the clearest piece of evidence here, with the number of households planning to travel abroad up 30% compared to 2019. This could suggest that Americans—who can afford to travel abroad—remain flush with enough cash to do so at higher rates than the pre-pandemic period. Looking at spending data across a broader category set, most of the declines in June stem from retail-oriented goods: [Source]() Here, we can see that necessity spending growth remained strong in June, along with services. But, spending on non-essential retail items fell precipitously. Fluctuations in necessity spending are typically more pronounced among lower-income earners as they must adjust their budgets more drastically than high earners, who tend to maintain a consistent level of spending on essential items. Thus, changes in necessity spending are often indicative of financial pressures faced by lower-income households, as they are compelled to reallocate their limited resources. Paradoxically, an increase in necessity spending paired with a decline in discretionary spending can signal financial distress among lower-income earners, reflecting their need to prioritize essential goods over non-essential items. The Takeaway? Financial pressures faced by lower-income earners caused by declining wage growth, cumulative inflation, and a weakening labor market are starting to carry more magnitude on a macro scale than improvements in financial conditions for high earners. So far, they’ve been able to hold up well thanks to strong wage performance in the last 3 years. Plus, young Americans—who make up a larger proportion of low earners—have been receiving quite a lot of help from wealthier/higher-earning parents. [Source]() This is a clear sign that restrictive monetary policy has done its job—maybe too well—and now could be leading us into a spending-driven recession. Despite the high rates, this is exactly why you all have to run up bankruptcy-level credit card debt like I am in order to support the economy. Worst case, just look at the above chart and beg someone to pay it off for you. What's Ripe 🤩 EV Stocks (LCID, RIVN, TSLA) 📈25.0%, 📈8.1%, 📈3.0% - It was a bad day to be an ICE vehicle on Friday as EV makers popped for entirely different reasons. Tesla appears just to be recovering from Thursday’s drop, but… - Lucid popped on a 25% beat of Q2 delivery estimates at a record 2,394. The firm’s CEO also hyped the company’s partnership with PIF on CNBC. - Rivian soared on an upgrade to Buy from Mizuho despite their new price target of $15/sh, implying a 10% fall from Thursday’s close. That makes sense, right? Bank of New York Mellon (BK) 📈5.4% - Not many companies survive for 240 years, but BNY Mellon hasn’t just survived—they’ve thrived. Founder Alexander Hamilton would be proud of this Q2. - Both revenue and earnings beat estimates by 5.3% as AUM grew 7% to $2.05tn and AUC grew 6%. Fees collected on those assets grew 5%. - It wasn’t all good news as loans and deposits fell 6%, but the bank and asset manager’s 12% dividend raise more than made up for it. What's Rotten 🤮 Wells Fargo (WFC) 📉6.0% - This company’s gonna have to change its name after this earnings report because (un)Wells Fargo f*cked worse than any other bank so far. - Revenue and earnings beat estimates despite net income falling 0.57% and sales growing just 0.66% annually. Deposits fell slightly as well. - The 9.4% decline in net interest income was the worst part of the report, blaming higher funding costs. IB fee growth of 38% was also the lowest so far. Snowflake (SNOW) 📉1.8% - Some snowflakes ask for safe spaces, but this Snowflake created one. The only problem was that this space was only “safe” for hackers to steal data. - AT&T announced Friday morning that hackers had accessed cellular and texting data from “nearly all” of the wireless provider’s 90mn U.S.-based customers. - Snowflake was also blamed for recent hacks at LiveNation and Santander. It’s like if Venmo stopped allowing users to send and receive money… you literally had one job. Thought Banana 🤔 Katy Perry’s Inflation Data Known for being the first celebrity crush of any teenage boy who was born between 1996 and 2002, Katy Perry’s 2008 club hit Hot N Cold sums up June’s inflation data well. Describing inflation and JPow’s view on a September rate cut, Perry sings, “Cause you're hot then you're cold, You're yes then you're no…” We got the “cold” side of inflation via the CPI report, but June’s PPI is about to heat things up. The Numbers Wholesale prices grew 0.2% in June, according to the Producer Price Index, a measure of price changes at the production level. [Source]() Economists had been expecting a 0.1% increase, meaning June’s data was hotter than expected. However, the PPI grew just 2.6% annually, below the 3.0% reading from June’s CPI and in line with May’s PCE price index growth of 2.6%. That suggests that producer prices are maintaining a relatively stable level and causing little concern for a potential uptick in inflation. Service industry prices increased at a higher rate in June, potentially reflecting higher demand levels from wealthier consumers, as described above. But, goods prices—measuring the production stage cost of commodities and other goods—remained subdued, declining from May to June. = [Source]() The Takeaway? This may have been the most boring inflation report of the last 3-4-years. There was very little surprise within the data, implying that the Fed has (so far) done well in achieving the “price stability” half of its mandate. Stay tuned on the “maximum employment” half. Going forward, if there’s a problem, we’ll find it there. The Big Question: Can we expect a similar uptick in the services side of CPI in July? Banana Brain Teaser 💡 Previous 🗓 Team A and Team B are competing against each other in a game of tug-of-war. Team A, consisting of 3 males and 3 females, decides to line up male, female, male, female, male, female. The lineup that Team A chooses will be one of how many different possible lineups? Answer: 36 Today 🕐 A border of uniform width is placed around a rectangular photograph that measures 8 inches by 10 inches. If the area of the border is 144 square inches, what is the width of the border, in inches? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “An investment in knowledge pays the best interest” — Benjamin Franklin How Would You Rate Today's Peel? 😁[All the bananas](=) 😐[Meh]( 😩[Rotten AF]( Happy Investing, David, Vyom, Jasper & Patrick [ADVERTISE](=) // [WSO ALPHA]() // [ACADEMY](=) // [COURSES]( // [LEGAL](=) [Unsubscribe]( IB Oasis Corp. (aka "Wall Street Oasis") 14435 Big Basin Way PBN 444 Saratoga, California 95070 United States