Stickier than Expected

The CPI-U increased 0.4% in February on a seasonally adjusted basis

Summary: Inflation is proving a bit stickier than expected and that is impacting the outlook for interest rate cuts. Meanwhile, even though consumer spending remains strong, low and moderate-income consumers are under a lot of pressure.

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Macro

Visa’s volumes are stable 

"Through February 21, we said payment volumes, year-on-year growth through February 21, had been relatively stable, to what we saw in Q1. That applies in our payment volume business. That applies in the U.S. and most major markets around the world. I also reiterated that on our cross-border business, we also saw relative stability in the first half of Q2, to what we saw in Q1. So that all said, I guess that does mean, thankfully, the weather-related issues did abate and" - Visa (V 0.00%↑) CFO Christopher Suh

But inflation is stickier than many expected

“The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in February on a seasonally adjusted basis, after rising 0.3 percent in January, the U.S. Bureau of Labor Statistics reported today….The all-items index rose 3.2 percent for the 12 months ending February, a larger increase than the 3.1% increase for the 12 months ending January. The all items less food and energy index rose 3.8 percent over the last 12 months.” - Bureau of Labor Statistics

“We are seeing inflation come down. We believe that the last 100 basis points or so of inflation will be somewhat stubborn” - Regions Financial Corporation (RF 0.00%↑ ) CEO John M. Turner

As such, enthusiasm for lower rates has gone down 

"There was a bit of enthusiasm in the market that interest rates were going to be moving down a number of times as we went through 2024, some of that enthusiasm has subsided." - Lennar (LEN 0.00%↑) Co-CEO Stuart Miller

Low-to-moderate-income consumers are under a lot of pressure

"While we hope to do better than our forecast this year, the external environment remains uncertain and our low-to-moderate income customers' discretionary spend continues to be impacted by elevated costs of living." - Ross Stores (ROST 0.00%↑) Barbara Rentler

"Persistent inflation and reduced government benefits continued to pressure the lower-income consumers that comprise a sizable portion of Family Dollar's customer base. Accordingly, Family Dollar's quarter four comp declined 1.2% as a 0.7% traffic increase was more than offset by 2% ticket decline. Family Dollar's consumables comp decelerated sequentially to 2.2% in quarter four from 6.2% in quarter three. Discretionary comp was down a full 12%. As challenging as this was, it was a slight sequential improvement over quarter three. Categories like apparel, home decor, electronics, and general merchandise remain weak as lower-income consumers continue to be very deliberate about their spending." - Dollar Tree (DLTR 0.00%↑) CEO Richard Dreiling

COVID-era savings are gone

"It's a challenging consumer environment. Consumers working through dealing with all the inflation that's kind of hitting their pocketbook across all the areas of spend and it's obviously been significant as we talked about earlier. Higher interest rates are having an impact. I think in particular for lower-income consumers you've got a couple of additional dynamics eroded COVID savings that people were drawing on and spending from I think that are largely gone." - McDonald's (MCD 0.00%↑) CFO Ian Frederick Borden

Subprime credit has deteriorated but stabilized

"You have seen for subprime consumers, right? You've seen increasing levels of debt on their balance sheets. You have seen increasing delinquencies. You've seen it both in auto as well as in card and to the same degree in personal loans, probably more significant in auto than you've seen in card. I'd say that, probably, in the last couple of months, it's kind of stabilized, right? It got to a difficult place and hasn't really gotten much worse, or it's stayed about where it is. So, generally speaking, what we're seeing is the consumer is relatively healthy, right?" - Equifax (EFX 0.00%↑) CFO John W. Gamble

There’s some risk that the final chapter of the recession story has yet to be written

“We were not alone but we were pretty wrong in being negative for most of last year thinking that the economy was headed into a recession…There is some risk here that the final chapter on the recession story is yet to be written” - PNC Financial Services (PNC 0.00%↑) CIO Gagan Singh

International