In this episode, we discuss we discuss how the delta variant is dampening the summer euphoria, what companies are seeing in June/July data, and our Q2 review on Twitter Spaces this Friday.
The episode is based on yesterdays’ newsletter which is available on Substack. A transcript of this podcast, with relevant images and quotes, is available to all subscribers this week.
Show Notes:
00:00:00 Introduction
00:00:15 Delta variant slowing summer euphoria
00:01:17 June-July data from companies is positive
00:02:26 Push back on return to the office
00:02:51 Seasonality and inflation may cause headwinds
00:03:51 The underlying economy is strong and robust
Scott: [00:00:00] Welcome everyone to a new episode of The Transcript podcast. Thanks for joining in. You've got me Scott Krisiloff, I'm editor of The Transcript, along with Erick Mokaya who's our lead author. We sent out a new newsletter yesterday and there was a lot of good stuff in there.
Delta variant slowing summer euphoria
I think the biggest change that I noticed over the last week is just been the increasing concern over the Delta variant in the United States. For the last few weeks, it's been in the back of people's heads as something to keep an eye on, but it hasn't had much impact on the economy
We're still not seeing a big impact in any of the data, but I think especially as case counts rose above a hundred thousand per day threshold in the US, it's starting to get to a point where there is a little bit more impact on the way that people are going about their lives.
Last week could end up being a bit of a turning point in that where Delta and some other factors are providing a bit of a drag on the economy from the euphoria that we had at the beginning of the summer, as we're exiting the summer some of that euphoria may be starting to wear off a little bit. Any thoughts Erick?
"…the continued bit of cloudiness about the Delta variant, I think, is creating a little bit of a drag on food service at the moment. And so for us, the main characteristic of the third quarter and our guidance is simply lack of visibility" - Beyond Meat (BYND) CEO Ethan Brown
"…we're definitely not done with this. We shouldn't even call it post-pandemic. The pandemic is not over." - Fiverr (FVRR) CEO Micha Kaufman
June-July data from companies is positive
[00:01:17] Mokaya: I agree. The past two weeks we've noticed a little bit of a change in tone in executives who are a little more concerned about the Delta variant. On the positive end, the data that you have from the earnings calls of companies who reported last week and which had the whole of July to look at the data that is coming in, it's positive. It's not that the trends are continuing which they've seen before. Lyft had their best month since March 2020 in terms of rideshares.
It was RCI Hospitality that said something like July was better than June. That shows you that some trends are continuing, but I think the fall is a bit of a wildcard because as you say, a lot of people are going back to work now, leisure is moving more to corporate travel.
There are a lot of executives who are paying attention to how data develops, especially this month, the next month so that they can see if it's really impacting. So we don't have any data for August, but for June and July, the data looks good for most of the companies that reported.
"We are, of course, closely monitoring the impact of the Delta variant on the rising COVID case counts around the world as well as some newly imposed travel restrictions, which have led to a modest pullback in our booking trends in the month of July relative to June. However, the July booking trends were improved from our full Q2 results." - Booking (BKNG) CEO Glenn Fogel
"Yes, we've seen July improve from June levels in terms of percentage of 2019. The rate of improvement slowed May to June, as you saw in our numbers.” - TripAdvisor (TRIP) CFO Ernst Teunissen
Push back on return to office
But as you say, it's a little bit of rising concern on the Delta variant. That would also maybe impact us. Bright Horizons talked about if it will impact the return to offices. Some companies have pushed back on the dates because I think some were saying September, but some have said it's okay then we'll check out in October or November. So it's a little bit of pushback in terms of going back to the office. Any thoughts yourself?
"We continue to hear that that is very much a focus for employers is to by and large get their employees back to the office. Irrespective of that, I think there is certainly a tone change as it relates to irrespective of few employers that may delay their date past Labor Day or just after Labor Day." - Bright Horizons Family Solutions (BFAM) CEO Stephen Kramer
Seasonality and inflation may cause headwinds
[00:02:51] Scott: Yeah. I think most people are vaccinated feeling protected from that. And so I think it will be a marginal impact on going out to restaurants or consumer travel, things like that. But I think that sentiment is also hitting the seasonality hurdle coming up where people were going to be going out to restaurants less anyways People were going to be traveling less anyways from a consumer standpoint.
And so that could really start to funnel into the data that along with having higher inflation. People are starting to also recognize the inflation that's going on. Around the country, you're seeing $3, $4, $5 gas prices. No matter if you've had this nominal income boost, your real purchasing power isn't rising as much as the nominal side may have made you think psychologically. Again, this can provide some headwinds to real economic growth over the next couple of quarters.
“Today, I want to speak about what used to be called the cycle of inflation...That relates to increasing prices and the expectation of ever-increasing prices…the cycle begins and feeds upon itself. I believe that this cycle of inflation is what we are beginning to experience today." - Loews (L) CEO Jim Tisch
"I hate to use the word unprecedented too loosely, but we are certainly seeing inflation with little recent precedent. While our conversations about inflation may have seemed early at the time, it is now hard to read, watch or listen to the news without hearing about inflation. Inflation is here, and it appears that it will likely be here for some time." - B&G Foods (BGS) CFO Bruce Wacha
The underlying economy is strong and robust
[00:03:51] Mokaya: Yup. I listened to Jamie Dimon, last week he was opening a branch of the bank somewhere. One of the things that he highlighted and that was the first quote today was about the economy still being strong. The data he is seeing, the underlying economy is actually pretty strong going forward, even though there are concerns about, inflation, labor, which we've been seeing, which we've been tracking for the last couple of months. Still executives keep commenting about them, but it seems like the underlying economy is pretty strong and robust.
“I think the good news which is far more point we have a healthy underlying economy. The data is uncertain but the strength of the economy in my view is not - JPMorgan Chase (JPM) CEO Jamie Dimon
[00:04:26] Scott: Yeah I mean, from a financial markets perspective, we continue to have this feedback loop where if there is any softness, it makes it so that it's less likely that the Fed is going to pull back on stimulus. The Fed being the entity that sets the cost of capital in the United States and cost of capital being the most important factor for securities prices. A slow economy can actually be a good thing for asset prices. We've got this weird feedback thing still going on to think about too.
Tough comps
[00:05:00] Mokaya: From what I read is mostly about again, supply chain constraints, cost pressures, tough comps. The slow down is more from the growth of last year, when you're lapping them, it's really hard to give you greater growth. They can be an excuse to keep things as they are also. If you compare it versus 2019, you're still above the threshold where you were. Looking at 2019 and excluding 2020, 2021 is actually growth. If you compare against 2019, then the growth is still there. But if you compare against 2020, of course you're slowing down.
[00:05:41] Scott: Yeah, I think that's right. The economist's view of the world is that, of course there's still growth. But financial markets tend to focus on year over year comps and year over year comps are getting harder here. And there are these other headwinds. I'm not saying we're going into a recession by any means, but I do think that the euphoria era that we have been living through for the last several months that we've documented well on The Transcript, may be coming to a bit of a close here.
[00:06:16] Mokaya: Yep. I get that. Speaking of tougher comps, I think Clorox is having really tough comps this year. The demand for cleaning and disinfecting product is expected to stay up a bit. They expect a slowdown, but not as huge as they had this week. That was pretty interesting to see.
[00:06:36] Scott: Yeah. This might be a good opportunity to remind listeners that we're going to be doing a rundown of the second quarter and what we saw on Twitter Spaces on Friday after market close. We'll have a couple of special guests joining us in Sam Ro and The Science of Hitting. Any additional notes you want to make on that, Erick?
[00:06:59] Mokaya: I think it would be a really nice time also to meet us for the first time and live on a discussion and also to forward your questions about anything that we've been covering that you maybe want a little bit of exposition on. It's going to be a really great time, one hour of really good content this Friday. Join us on Twitter Spaces. We'll include the link in the podcast notes for this week so that you can be able to join us on Friday.
I think on that note we can also close up today's podcast. Thank you so much for joining us. Subscribe and email us at admin@theweeklytranscript.com so that we can keep in touch. See you on Friday and then see you next week.
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