The Enterprise Strikes Back
Is the cost of tokens exceeding the value they produce?
Summary: Enterprises are striking back on AI costs. The SpaceX IPO dominated the financial news cycle. The economy remains resilient.
Editor’s Note: We have reserved the sections after Macro for our premium subscribers. If you’re not a premium subscriber already, please consider subscribing.
Macro
The economy has weathered a lot of storms
“The economy has been much more resilient than people expected. And this really goes back over time. If you went back to 2020, we obviously had COVID. We subsequently, the following year had the Russia-Ukraine invasion. We had the Silicon Valley Bank shock, which was more relevant to the folks in this room than the broader economy. We had Liberation Day last year. This year, the Iran war. And each time the global economy, particularly the U.S. economy, has powered through and the year ended more in a better spot than people expected. And I think the same thing will happen here. I think there’ll be some sort of resolution and the underlying strength of the economy will stick.” - Blackstone (BX 0.00%↑) COO Jonathan Gray
And it remains...resilient
“And people probably are maybe overusing this word resilient, but it’s been very stable, very resilient, very good activity levels across really all of the businesses, which is really good to see.” - Wells Fargo (WFC 0.00%↑) CFO Michael Santomassimo
“US consumers have shown resilience, have shown a fiscal equilibrium. We’ve seen, on the spend side, for example, even if you take out the portion of the demand volumes that are reflecting from gas, if you take that out, we’re still seeing mid-single digits in sync with what we were seeing before. That’s relatively stable and constructive.” - Citigroup (C 0.00%↑) CFO Gonzalo Luchetti
“So time is a big vector here. And so as we sit here today, the consumer is resilient. The metrics are good. So we pretty consistently talked about the fact that the consumer remains resilient, and all of the metrics that we look at, speaking, continue to show that. So that’s true of deposit buffers; while they’ve normalized even for the lower-income cohort, they stabilized. While it’s true of debt service, it’s true of utilization in card, spend is still solid. So everything still looks pretty good.” - JPMorgan Chase (JPM 0.00%↑) CEO of Consumer and Community Banking Marianne Lake
“Consumer is proving to be resilient, albeit the talk of the K-shaped economy is valid. But when you look at it on an index basis, the fundamentals are still very strong.” - Ares Management (ARES 0.00%↑) CEO Michael Arougheti
Ignore the headlines
“I would say if we didn’t read any news and all we did was just really look at the data that we see in the economy and the data that we see on our portfolio, we have a really quite positive view....I think the consumer is really the strong shoulders the economy stands on. Unemployment continues to be very strong.” - Capital One (COF 0.00%↑) CEO Rich Fairbank
“There’s more, I would say, concern and cautiousness than is what’s reflected in the general level of activity. I was joking around with someone recently and saying it’s kind of what you see broadly, whether it’s on the consumer side or on the business side, where the surveys, various surveys are reflecting considerably more caution than what we actually see in the numbers.” - Bank of America (BAC 0.00%↑) Co-President James DeMare
The numbers are strong
“On the consumer side, people continue to spend in May across our debit and credit card spend, it was up 9% year-on-year. That includes the impact of gas being higher across that portfolio.” - Wells Fargo (WFC 0.00%↑) CFO Michael Santomassimo
Even the lower income brackets are doing ok
“Retail, high-end or higher net worth consumer spending is up 6% year-on-year. Even in the lower income brackets, ex-energy spend is still up 3%, 4% year-on-year. Deposit balances across all cohorts are up. So consumer is healthy, a little struggle at the lower side” - The PNC Financial Services Group (PNC 0.00%↑) CEO William Demchak
Inflation has accelerated
“The all items index rose 4.2 percent for the 12 months ending May, after rising 3.8 percent for the 12 months ending April. The all items less food and energy index rose 2.9 percent over the year, following a 2.8-percent increase over the 12 months ending April. The energy index increased 23.5 percent for the 12 months ending May. The food index increased 3.1 percent over the last year.” - Bureau of Labor Statistics
But consumers are handling it
“But as it is right now, our card members typically can handle that kind of inflation. We have seen, just like everybody, gas spend kind of like increased dramatically as a result of the price changes. But it’s not like we are seeing an offsetting decline elsewhere.” - American Express (AXP 0.00%↑) CFO Christophe Le Caillec
Underlying inflation may be slower than headline
“But if you look at shelter costs, which are the biggest component of CPI, I would say they’re running in the low 1s versus government data in the low 3s, and that will be helpful to the new Central Bank chair, particularly after the wars in the rearview mirror. And wages for us have gone from, call it, 5% in the U.S. 2 years ago to 3%. So again, that’s helpful. I think the picture after the war ends will be better than I think most people realize.” - Blackstone (BX 0.00%↑) COO Jonathan Gray
