Gradual Deterioration

There are signs of continued slowing across many segments

Succinct Summary: Last week was a heavy week of earnings and the US economy showed signs of continued slowing across many segments. It’s still not clear how much of that slowing is an artifact of banking stress that has mostly healed. If the economy paused in March due to bank stress, it could be poised to pick back up because the underlying activity is still relatively strong. The Fed remains fairly hawkish.

Since it’s earnings season, everything outside of the macro section will be held only for premium subscribers. This week we found a lot of good content from regional banks and others. Catalysts include green shoots in capital markets, weakness in semiconductor markets, and Tesla’s plan to maintain operating margins while waging a price war against its competitors (hint: it includes AI). Sign up to read!

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Macro

Consumer spending has slowed

"So far, in April, it's still early. It's probably a little lower than it was for the month of March…the total spending year-over-year increases have slowed down. And I think that means it's a precursor to the economy being a little bit slower than we're seeing, and then frankly, consumers being more careful in the use of the cash." - Bank of America (BAC 0.00%↑) President of Global Commercial Banking Alastair Borthwick

"The other element we're seeing is more careful usage. If you're overall made aware of inflation in everyday media, every day, you look twice before you use another paper towel, et cetera." - Procter & Gamble (PG 0.00%↑) CFO Andre Schulten

Corporate spending has slowed too

"...where you do see a slowdown in small business is Goods and Services…I think what we've seen, and this is a continuing trend is you've seen a slowdown in a lot of the advertising spending. But I will point out that, that's not any different than what you've seen in -- from a lot of corporations, I mean -- and ours ourselves." - American Express (AXP 0.00%↑) CEO Stephen Squeri

Labor markets are softening

"After months of a remarkably strong U.S. labor market, we are now seeing more companies across various industries recalibrating their workforces after a period of bullish hiring, shifting their focus towards more intentional hiring for specialist skills and in-demand roles, delaying hiring decisions and reducing their demand for contingent workforce, in line with dynamics we have seen in past economic slowdowns." - ManpowerGroup (MAN 0.00%↑) CEO Jonas Prising

The deterioration has accelerated some

"Specifically on the U.S., we saw a gradual deterioration over the course of the quarter that was building through the end of the quarter, so I’d say if you look at that average rate for the quarter of minus-13, we ended the quarter slightly, slightly higher than that" - ManpowerGroup (MAN 0.00%↑) CFO John McGinnis

"...we are facing economic uncertainty and a tough price environment in a few of our markets, but we expect to see strength in some other commodity areas…We came into the year, industrial production was forecast to be down about 0.5%. It's actually gotten a tad bit worse. It's now down about 0.7" - Union Pacific (UNP 0.00%↑) EVP of Marketing & Sales Kenyatta Rocker

But the economy isn’t exactly weak

"...whilst we are seeing some softening in some skill sets, this is still in the context of a tight labor market where there are many open jobs here in the U.S., as well as in Europe and, frankly, globally as well, and we saw this as well in the employer--Manpower Group Employer Outlook Survey looking into the second quarter, as employers are still intent on hiring talent, and that’s why we feel that the environment is still solid and the competitive environment is always competitive, but rational at the same time." - ManpowerGroup (MAN 0.00%↑) CEO Jonas Prising

"They may be pulling back in other areas ... but I don’t see it in our credit card data, I don’t see it in our bookings." - Delta Air Lines (DAL 0.00%↑) CEO Ed Bastian

We could have a mild recession

"...everything points to a relatively mild recession given the amount of stimulus that was put -- that was paid to people and the money they have left over. The fact that unemployment is still at 3.5% is full employment plus, and then the wage growth is slowing and tipping over. So the signs of inflation are tipping down, but they're still there, but that translates into good -- relatively good activity.” - Bank of America (BAC 0.00%↑) CEO Brian Moynihan

"Clearly we don’t know what the economic cycle is going to be, but if we do look at our past economic cycles and our current data, this tends to indicate that we are in a garden variety recession - by that, I mean a shallow economic slowdown or recession" - ManpowerGroup (MAN 0.00%↑) CEO Jonas Prising

CEOs think that we’re getting near the end of rate hikes

"...we're getting towards the end of the hikes now, we would think." - Bank of America (BAC 0.00%↑) President of Global Commercial Banking Alastair Borthwick 

"The Fed is likely to pause or maybe go 25 basis points higher from here, but I think they’re unlikely to pivot as quickly as the market is expecting.. I think inflation is definitely cooling. It is increasingly in the rear-view mirror, and we see it in our portfolio companies" - Blackstone (BX 0.00%↑) CEO Stephen A. Schwarzman

But the Fed still sounds hawkish

"I would welcome signs of moderating demand, but until they appear and I see inflation moving meaningfully and persistently down toward our 2% target, I believe there is still more work to do" - US Federal Reserve Governor Christopher Waller

"In conclusion, inflation is still too high, and we will use our monetary policy tools to restore price stability...Because of the lag between policy actions and their effects, it will take some time for the FOMC's actions to bring inflation down to our 2% target. With inflation expectations well anchored, I expect inflation to decline to around 3-¼% this year, before moving to our longer-run goal over the next two years." - Federal Reserve Bank of New York President John C. Williams

"We are much closer to the end of the tightening journey than the beginning…That said…it would be a mistake to declare victory before the job is done. Here, I am reminded of the words of former Fed Chair Paul Volcker when he fought inflation in the 1980s: “…failure to carry through now in the fight on inflation will only make any subsequent effort more difficult, at much greater risk to the economy.”" - Federal Reserve Bank of Cleveland President Loretta J. Mester

International