Challenging and Fluid

Residual savings rates continue to languish at historically low levels

Summary: The macro environment remains fluid and challenging. There seems to have been a softening in the economy in September and October. Consumers are under pressure and businesses are cautious. The good news is that inflation appears to be mostly behind us. But the Fed may still choose to keep rates higher for longer. Market participants are preparing themselves for that possible reality.

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Macro

It’s a tough environment 

"We continue to operate in a challenging and fluid macroenvironment. Real consumption continues to hover at levels which we believe to be unsustainable. Incomes continue to lag consumption growth, despite the positive trend in labor participation as the ongoing decline in government transfers, still receding from stimulus era highs, offsets any wage gains from the return to work. The residual savings rates in the economy have consequently continued to languish at historically low levels." - Upstart Holdings (UPST 0.00%↑) CFO Sanjay Datta

There was softening demand in Sept/Oct

"Although our third quarter volume trends were slightly better than expected, we did observe softening consumer demand in September that carried through October…Given these trends, our base-case expectation is a continued pressure on discretionary demand will lead to a relatively muted seasonal uptick in volumes during the holiday season." - eBay (EBAY 0.00%↑) CFO Stephen Priest

"I would say, at the same time, the back half of our -- since the call, the back half of our October was softer than we expected.. So at the time, a couple of weeks back, we gave an estimate of a growth rate that would look similar to September, and that's sort of where we had been running at the time.. The back half was softer.. So we did see that." - MSC Industrial Direct (MSM 0.00%↑) CEO Erik Gershwind

"Recently, we've experienced a higher degree of variability in weekly performance in between holiday events in the US. Including seeing a softening in the back half of October that was off trend to the rest of the quarter…this gives us reason to think slightly more cautiously about the consumer versus 90 days ago” - Walmart (WMT 0.00%↑) CFO John Rainey

"...throughout Q2, in line with what our peers have been saying, you know, we did see a deterioration. I think it was really September where we particularly noticed, the the global slowdown, and I think as indicated by our guidance, fair to say those trends have have continued into the quarter.” - Burberry ($BURBY) CEO Jonathan Akeroyd

"Big-ticket comp transactions or those over $1,000 were down 5.2% compared to the third quarter of last year. We continued to see softer engagement in big-ticket discretionary categories like flooring, countertops and cabinets. However, we saw big-ticket strength in Pro-heavy categories like roofing, insulation and portable power." - The Home Depot (HD 0.00%↑) EVP of Merchandising William Bastek

Consumers are under pressure

"Overall, consumers are still spending, but pressures like higher interest rates, the resumption of student loan repayments, increased credit card debt and reduced savings rates have left them with less discretionary income, forcing them to make trade-offs in their family budgets. For example, this year, we've seen more and more consumers delaying their spending until the last moment. Guests who previously bought sweatshirts or denim in August or September are deciding to wait until the weather turns cold before making a purchase. This is a clear indication of the pressures they're facing as they work to stretch their budgets until the next paycheck” - Target (TGT 0.00%↑) CEO Brian Cornell

"We're not seeing a major distinction between our channels, across channels. The aspirational consumer is under more pressure on a relative basis. They're being more choiceful." - Tapestry (TPR 0.00%↑) CFO Joanne Crevoiserat

"...we are operating in a pretty cautious consumer environment, and we took the opportunity to put a little of that caution into our guidance.” - BJ's Wholesale Club Holdings (BJ 0.00%↑) CFO Robert Eddy

Lower-income consumers are particularly stressed

"...if you look at the consumer, it's really the tale of two sides. The over 75,000 consumer continues to be healthy. We continue to see traffic growth in that segment. We're holding our share in that segment. Under 75,000 consumers a little more stressed, especially as you go down the income core, it gets even more stressed…From a trade-down perspective, we are seeing some trade down from mid-scale casual and sit-down into QSR. But we're also seeing some trade out of the category from the lower-income consumer out of QSR and into food at home. So it was kind of wash each other out along the way." - The Wendy's Company (WEN 0.00%↑) CEO Todd Penegor

Businesses are cautious

"This rosy economic picture is misleading, as it does not accurately reflect the market tone and operating environment for many of our clients…Our clients are corporations that actively manage their headcount and operating expenses in times of weak or negative earnings growth. And as a result, they are more cautious in making new space commitments. The remote work is obviously not helping space demand. We believe economic conditions are the primary driver of our slower leasing activity in 2023, and leasing will rebound when earnings growth returns." - Boston Properties (BXP 0.00%↑) CEO Owen Thomas

Hiring has slowed

"The Federal Reserve's 525 basis point increase in interest rates over the past 18 months has increased the cost of capital for businesses, leading to employers taking a far more cautious approach to hiring than just a few quarters ago…This rapid change in the hiring market has impacted ZipRecruiter's business, along with other off-line and online hiring-related businesses in the United States." - ZipRecruiter (ZIP 0.00%↑) CEO Ian Siegel

Inflation is behind us

"I think the most important observation we've made is that the worst of the inflationary environment is behind us. And as a result, as Billy said, retail prices are settling in the market." - The Home Depot (HD 0.00%↑) CFO Richard McPhail

"In the U.S., we may be managing a period of deflation in the months to come. And while that would put more unit pressure on us, we welcome it because it's better for our customers... Grocery inflation moderated nearly 300 basis points from Q2 levels to a mid-single-digit increase versus last year. But on a 2-year stack, it was still elevated at a high teens percentage” - Walmart (WMT 0.00%↑) CEO Doug McMillon

"As expected, inflationary trends, while still present, were significantly lower than last year and second quarter levels. We experienced more disinflation during the quarter than we expected, particularly in our perishable food business.” - BJ's Wholesale Club Holdings (BJ 0.00%↑) CFO Robert Eddy

International