Summary: Dollar Tree echoed Dollar General's concerns from last week about the health of lower-income consumers. Low-income consumers are feeling pressure and this may be a canary in the coal mine for the rest of the economy. The Fed seems to be on top of any weakness though and is ready to meet the threat of over-cooling with lower interest rates.
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Macro
Dollar stores have seen increased pressure on low-income consumers
"Demand from Family Dollar's core lower-income customer remains weak...And beginning this quarter, we started to see inflation, interest rates, and other macro pressures have a more pronounced impact on the buying behavior of these customers. This impacted our second quarter comp performance, and is the primary driver of our revised full-year outlook." - Dollar Tree (DLTR 0.00%↑) EVP of U.S. Stores Michael C. Creedon
“So as we looked at the quarter, what we saw was a pretty drastic slowdown in change. And it happens suddenly, I would say, mid-quarter-ish, if you will...It happened across every region, every division that we had, almost the same amount." - Dollar General (DG 0.00%↑) CEO Todd Vasos
“Fast forward to today where we all know the problem, the consumer discretionary spend challenges that everyone's having. McDonald's, Starbucks, Dollar General down 20% today because people can't afford to buy things in a dollar store” - Etsy (ETSY 0.00%↑) CEO Josh Silverman
Is this a canary in the coal mine?
"When things start to move south in the economy, our core customer feels it first, right? So we usually see it before most retailers start to feel it...It looks like the economy is slowing at a pretty decent clip." - Dollar General (DG 0.00%↑) CEO Todd Vasos
Or maybe just election year jitters?
"I think the important thing to recognize is this is an election year. If you look back at every sort of 4 years where there's a real question in consumers' minds as to who's going to be elected President...People tend to pull in a bit. And that's part of what we're seeing is you're seeing a bit of that consumer wariness, most consumer companies are saying the same thing." - Constellation Brands (STZ 0.00%↑) CEO William A. Newlands
Companies are betting on lower rates to boost demand
"Interest rates coming down should facilitate stronger consumer demand across a range of applications, of vehicles being less expensive to buy, consumer borrowing being more readily available, corporate borrowing being more readily available. So we think that's bullish for demand overall." - GlobalFoundries (GFS 0.00%↑) CFO John Hollister
“We are encouraged that inflation hit its lowest post-pandemic level in July with the consumer price index cooling to 2.9%, setting up a possible interest rate cut in September...We believe that if the interest rates are lowered, housing activity will accelerate." - Hooker Furnishings (HOFT 0.00%↑) CEO Jeremy Hoff
“When rates go down, it helps build confidence on the direction of where things are going to be over a longer period of time...If the market gets confidence and if customers get confidence that the trajectory we're on is going to create economic stimulus. That's the more important outcome from this." - Microchip (MCHP 0.00%↑) CEO & President Ganesh Moorthy
The Fed is riding to the rescue
"I believe that the balance of risks has shifted toward the employment side of our dual mandate and that monetary policy needs to adjust accordingly." - Federal Reserve Governor Christopher J. Waller
If you’re going to have a soft landing, you can’t be behind the curve.
"It’s very clear what’s happening in the economy. Inflation is way down. We’re not overheating. And there are definite warning signs of things over-cooling...Do you want to be the most restrictive you’ve been in the entire rate-tightening cycle at a moment when there’s a pretty clear path to 2% inflation and the unemployment rate is above?" - Chicago Fed President Austan Goolsbee
“With the economy now in equipoise and inflation on a path to 2 percent, it is now appropriate to dial down the degree of restrictiveness in the stance of policy by reducing the target range for the federal funds rate. This is the natural next step in executing our strategy to achieve our dual mandate goals." - Federal Reserve Bank of New York President John Williams
The Fed sees the labor market as steady but moderating
"Employment levels were steady overall, though there were isolated reports that firms filled only necessary positions, reduced hours and shifts, or lowered overall employment levels through attrition. Still, reports of layoffs remained rare." - Federal Reserve Beige Book
"The data that we have received in the past three days indicates to me that the labor market is continuing to soften but not deteriorate, and this judgment is important to our upcoming decision on monetary policy...The jobs report for August, released this morning, supported the story of ongoing moderation in the labor market." - Federal Reserve Governor Christopher J. Waller
This won’t be the last cut
"I do not expect this first cut to be the last. With inflation and employment near our longer-run goals and the labor market moderating, it is likely that a series of reductions will be appropriate...As of today, I believe it is important to start the rate-cutting process at our next meeting." - Federal Reserve Governor Christopher J. Waller
International
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