Optimism Prevails

The supply chain is healing and labor markets are getting slightly better

Editor's note: Welcome to this week’s edition of The Transcript. Parts of the quotes which appear in italics are only available to our paid subscribers.

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Succinct Summary: Markets are feeling more optimistic these days and macro data continues to be strong. There is no sign that rising interest rates have hurt demand and yet there are signs that inflation is trending lower. The supply chain is also healing and labor markets have gotten slightly better too. The Fed remains hawkish though. Several Fed members warned that they are far from done in their fight against inflation.

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Macro

The prevailing sentiment right now is optimism

"I would say the prevailing sentiment right now continues to be optimism. I’d say they characterize the financial outlook for their businesses as good or excellent. Obviously, they are mindful of the uncertainties around the overall economy, but they are still investing in growth, and they have confidence in the second half of 2022. I mean backlogs are robust. Demand for services remains high. These supply chain issues have subsided somewhat. And from an economic standpoint, consumer spending is still healthy. We still have a robust labor market and consumer the consumer is still healthy" - STORE Capital (STOR 0.00%↑) EVP, Underwriting & Portfolio Management Craig Barnett

"....special waste is the one leading indicator -- because it's largely industrial-type jobs, and those industrial companies have some discussion as to when they spend a lot of those dollars. And we're not seeing them turn that off. So our special waste was very strong for Q1. It was very strong for Q2, and we continue to be optimistic about special waste. Even when we look at our numbers in the month of July, we still are seeing very positive comparisons in special waste." - Waste Management (WM 0.00%↑) CEO James Fish

There seem to be no signs of a slowdown

"While we are closely monitoring consumer and macroeconomic trends, we have yet to see signs of a slowdown in global lodging demand. On the contrary, the pent-up demand for all types of travel, the shift of spending towards experiences versus goods, sustained high levels of employment and the lifting of travel restrictions and opening borders in most markets around the world are fueling travel." - Marriott International (MAR 0.00%↑) CEO Tony Capuano

"We have not seen evidence of a consumer slowdown in our new consumer acquisition metrics, as new consumers acquired in Q2 2022 were in line with the year-ago period." - DoorDash (DASH 0.00%↑) CEO Tony Xu

"We have seen, so far, no change in consumer behavior, and we have seen, so far, that no slowdown in overall consumer demand." - Hugo Boss (BOSS 0.00%↑) CFO Yves Muller

We haven't yet seen any kind of significant degradation in demand -- We've seen a couple of recently isolated areas of softness, more specifically in areas like crypto, consumer on-demand, social." - Twilio (TWLO 0.00%↑) President of Revenue Elena Donio

Inflation is trending down

"The interesting thing that we are seeing now is that most of our commodities, most of the things that go into a Tesla -- not all, but more than half -- the prices are trending down in 6 months. The trend is down, which suggests we are past peak inflation" - Tesla (TSLA 0.00%↑) CEO Elon Musk

"No, I don't expect that we will see 2% inflation in the coming 12 months. But I can foresee that there will be a significant reduction in inflation in the coming 6 to 12 months and that we might be able to avoid the truly damaging wage-price inflation spiral that was so problematic in the 1970s" - Loews (L 0.00%↑) CEO Jim Tisch

The supply chain is healing

"Today, 2/3 of our customers are industrial companies. And we hear mixed feedback from these customers. When we look at many of these companies have had pent-up demand from their customers where they couldn’t produce enough parts to fulfill open POs that they have from their customers. And as things are easing up in their supply chain they’re actually being able to move product faster, which is leading to stronger demand. Others aren’t seeing that, others are actually seeing softness in demand that is impacting overall how much they’re shipping. But generally, we see the industrial economy very much in recovery, and that’s going to become a tailwind as we get through where things are today." - XPO Logistics (XPO 0.00%↑) President of Less-Than-Truckload

"Please keep in mind that we still saw a significant negative drag of around €600 million from supply chain constraints in the first half of the year, €400 million in Q1, and €200 million in Q2. In the second half, we do not expect a major impact from supply chain constraints anymore.” - Adidas AG ($ADDYY) CFO Harm Ohlmeyer

"To set some context, we continue to see high freight costs impact first quarter profitability. Though we are now seeing signs that supply chain disruptions could find some balance from this point as we move through the rest of the year." - Under Armour (UAA 0.00%↑) CFO David Bergman

Labor availability has gotten a little better

"Underlying labor availability, I'd say that hasn't got worse. That's probably got a little bit better. I mean if you -- again, reading what the tech guys are starting to slow hiring. The auto guys are starting to potentially lay off people. I think that will get better. It's not that we felt it's getting a lot better, yes. But I feel that the labor market is easing a little bit and the reports back from our operating groups in the quarter were not saying I just can't get the people. That wasn't the kind of the primary thing. It was supply chain, inflation, and COVID-driven efficiencies. That was -- they were the key themes." - Moog ($MOG.A) CEO John Scannell

"Well, it's clear to me that full recovery is not this year. I mean we're seeing labor improvement, but I classify it as more of a trickle than a constant flow. It's great that production has increased, but it's increased a minimal amount." - Americold Realty Trust (COLD 0.00%↑) CEO George Chappelle

"...one of the things that I think is interesting is to look at the positions that we’re trying to fill if, for example, normal staffing levels were that we were trying to fill the final 95% to 100% of the positions we needed at the hotel level. Right now, we’re at 93%. So it’s definitely improved. It is not back to where we were in ‘19 in terms of the labor shortage, but we’re definitely seeing steady improvement, and the wage increases have slowed." - Marriott International (MAR 0.00%↑) CFO Leeny Oberg

It would be odd to be in a recession with full employment

"I don't foresee a deep and debilitating recession. Rather, I can imagine that the slowdown will be relatively shallow, which would be consistent with a full employment recession. The reason I've come to this conclusion is that we don't seem to have too many excesses in the economy or our financial institutions. There hasn't been ramping investment in housing and the financial institutions are in reasonably good shape and are seemingly not overextended." - Loews (L 0.00%↑) CEO Jim Tisch

The US is resilient

"The U.S. economy is quite resilient. I can't predict whether there will or won't be a recession, but I do know that we'll get through this." - Goldman Sachs (GS 0.00%↑) CEO David Solomon

But is the market too optimistic?

"One thing about the market, they expect inflation to come down quite rapidly next year, and they've been wrong on this so far. So I think the better bet is that it will take a while for inflation to come back to 2%. It won't be as rapid as what the market expects" - St Louis Fed President Jim Bullard

The Fed doesn’t think that its work is done

"Work on inflation is nowhere near almost done. We are still resolute and completely united on achieving price stability. We have a long way to go on that task." - San Francisco Fed President Mary Daly

The consumer is going to have to stop spending soon

"The consumer, which is the backbone of the U.S. economy, well, he may still be spending but this confidence is the lowest point it's been in decades and it's even worse in Europe. So there's no question that the consumer will stop spending the way he has spent in my mind. And you can't look backward, you have to look forward at what you're facing and he's facing dwindling savings rates because he's spending his money on gas, food, rents and housing prices, and interest expense. I don't see the offset" - Starwood Property Trust (STWD 0.00%↑) CEO Barry Sternlicht

International

Global Q3 and Q4 GDP numbers won't be good