Can't See No Recession Yet

Most CEOs are saying that the activity they are seeing does not suggest that a downturn is imminent

---

Editor's note: Welcome to this week’s edition of The Transcript. We have reserved all the quotes below the International section for our paid subscribers only. To enjoy the full newsletter, become a paid subscriber.

---

Succinct Summary: Last week was the first big week of earnings season and commentary from companies was generally very positive.  Most CEOs are saying that the activity they are seeing does not suggest that a downturn is imminent.  Business is strong and consumer spending is leading the way.  This poses some difficulty for the Fed as it fights inflation.  The Fed may be trying to directly slow the consumer down.

---

Macro

Activity does not suggest that a downturn is imminent 

"...behavior and trends from our consumer loan portfolio currently do not suggest that a downturn is imminent. Our credit metrics remain strong and sales are robust, even as our customers maintain high payment rates. Similarly, most labor market measures indicate employment conditions remain broadly supportive of consumer financial health and credit performance." - Discover Financial Services (DFS 0.00%↑) CEO Roger Hochschild

“We’re not seeing the stress. And when we talk to our customers, they’re not seeing the stress in their business models yet” - Bank of America (BAC 0.00%↑) CEO Brian Moynihan 

"We're acquiring spending and we see future travel bookings [strong] so I don't see it [a recession] in my numbers at all.  It's really hard for me to get my head around that in quarter three or quarter four we're going to have a big slowdown." - American Express (AXP 0.00%↑) CEO Stephen Squeri

"The business underlying fundamentals we're seeing from our customers are strong -- I think we're all reading those tea leaves and imagining it's coming. But we're not seeing it in our data, not any significant degree." - Travelers Companies (TRV 0.00%↑) CEO Alan Schnitzer on

“Our pipeline is strong. Our activity levels are good. So it's hard to see sort of immediate concerns. I think a lot of the concerns that we hear are a lot -- are further out. They don't feel like '22 concerns, but obviously, inflation, interest rates, all the things that we're dealing with. But the outlook, we said generally optimistic." - Comerica (CMA 0.00%↑) EVP, Executive Director, Commercial Bank Peter Sefzik

Business and credit are strong

"Look, credit is really strong right now, we're not seeing any -- what I would call cracks and what's happening with regard to credit, spending time with clients over the last few months. I think most of them would say things very good -- But in the back of their mind, they're reading the news, just like you are and we are and so they're worried about something coming down the pike. And I think they're starting to act a little bit on some of those concerns. But right now, when you ask them how their business is, their business is really strong." - First Financial Bancorp (FFBC 0.00%↑) CEO Archie Brown

"Everyone is watching, but you haven't really seen a change in delinquencies, like card delinquencies are lower than they were in 2019. There's a little uptick in subprime, auto delinquencies, but the consumer is strong and it starts with their working and then add to it, those that are homeowners have a bunch of equity in their home, plus 20%, 25%, 30% versus a couple of years ago, it's untapped." - Equifax (EFX 0.00%↑) CEO Mark Begor 

“...the driving demand factors in our businesses, for the most part, remain very healthy -- While we recognize there is considerable economic uncertainty right now, demand appears stable and resilient across our key end-use markets. spending appetite in this country still remains fairly high." - Nucor (NUE 0.00%↑) CFO Steve Laxton

The consumer is doing well

"Our customer data shows Bank of America customers spent the highest quarterly period on record in quarter two at $1.1 trillion in total spending. That's up 12% year-over-year -- For the first 2 weeks of July, the spending is up 10% plus in transactions, again, rising 6% plus. This is strong consumer resilience." - Bank of America (BAC 0.00%↑) CEO Brian Moynihan

Labor markets remain tight

“...labor markets are very healthy, talent shortages are high and demand for our services and solutions remains strong -- Hiring confidence has remained strong in absolute measures, with organizations experiencing talent shortages at record highs. In our most recent survey, completed in May, 75% of companies globally predicted they would not be able to find the talent they need, which is the highest in 16 years." - ManpowerGroup (MAN 0.00%↑) CEO Jonas Prising

"I don't know if we're struggling more than everybody else or not, I think everybody is struggling. We've hired over the last two years since we started talking about this issue, which we saw coming again a couple of years ago, 2,000 employees and our numbers haven't gone backwards. So the question has been not really as much as our ability to -- with employees into the pipeline and get them through the process, but a much, much higher attrition rate than we had expected from our current workforce -- Unfortunately, after we get them through the classroom training part and the on-the-job training part and they actually go to work in the outdoor operating environment, we've seen a significantly higher attrition rate than what we had ever normally experienced or than what we had anticipated" - CSX (CSX 0.00%↑) CEO Jim Foote

The consumer is the Fed’s greatest benefit and greatest problem

"If you look at our customer base, the consumer is posing the greatest benefit to the fed and the greatest trouble in that they're employed, they're earning money, spending money, have lots borrowing capability and they have more money in their accounts at the end of June than they had at the end of May, multiples of what they had pre-pandemic. So that makes the Fed's job tough because they're trying to slow down this wonderful thing we have called the American consumer, whose spending helps drive our economy and it's going strong right now. up double digits for the month of June and frankly double-digits for the first few weeks of July over last year's July” - Bank of America (BAC 0.00%↑) CEO Brian Moynihan

Inflation is likely to stay with us for a while.  It has become entrenched.

"For the second half of the year, we expect inflation to be consistent at an elevated level" - Tractor Supply  (TSCO 0.00%↑) CFO Kurt Barton

"Deficit spending in the U.S. has limited the government's ability to respond to rising inflation with increasingly higher interest rates. As for each 1% hike, interest on U.S. debt increases by $300 billion as it gets refinanced. So inflation is likely to stay with us. The same difficulty in raising rates in the face of higher inflation and the same causes are also occurring in Europe." - Interactive Brokers (IBKR 0.00%↑) Director of IR Nancy Stuebe

"We're cautious on inflation which we think could stay higher for longer than most expect" - Blackstone ( BX 0.00%↑ ) CEO Steve Schwarzman

"I do think these inflationary pressures will be here to stay. I don’t see a lot of decreases on the near-term horizon." - Johnson & Johnson ( JNJ 0.00%↑ ) CFO Joe Wolk

"I think what I was trying to say is there’s inflation everywhere and as I talked to CEOs that have big global supply chains, they’re not seeing it level off yet -- We see inflation deeply entrenched in the economy." - Goldman Sachs (GS 0.00%↑) CEO David Solomon

Good to remember that even  if we do get a recession, recovery is inevitable

"We make these decisions on a through-the-cycle basis. There will be a recession at some point. I don't know when. But the thing about recessions is, they're always followed by a recovery. And we're running the company to achieve the highest possible sustainable level of long-term growth." - American Express (AXP 0.00%↑) CFO Jeff Campbell

International

Asia is lagging 

"The point here is just to make it clear how different is over there versus in the U.S. where visitation levels are back and access these properties is back here in Las Vegas and regionals. It's not the case yet in Asia" - Las Vegas Sands (LVS 0.00%↑) CEO Robert Goldstein

Chinese developers in trouble 

"But now China, it's good that you point on it. Obviously, with the economic market cool down, and our industry market is severely dropping by more than 15%, the three red lines policy leading to really credit tightening -- the overall picture is disturbing and concerning. Many developers are in real difficulties, and this is also the reason why the whole market is slowing down so much. Cash is getting scarce, I have to say. Final note, you talk about the quality of backlog." - Schindler Holding AG Bearer Participation Certificates (SHLRF) CFO Urs Scheidegger

China light vehicle production up 30% YoY

"In China, light vehicle production in June was up over 30% year-over-year as lockdowns were lifted and demand was stimulated by tax incentives. However, continued supply chain challenges limit the level of growth." - Autoliv (ALV 0.00%↑)CEO Mikael Bratt 

Financials

Earnings will help determine the course of equity prices