A Workers' Market
High competition for talent means workers are spoilt for choice
Succinct Summary: The economic recovery trends continue even as supply chains struggle to keep up with demand. Tight labor markets are leading to wage inflation and it’s a workers’ market. Meanwhile, the Delta variant seems to mostly impact the unvaccinated.
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Macro:
The US is leading the global recovery
"…when something shocks the system, the U.S. rebounds quicker than anybody. Almost scary how well the U. S. overcomes of volatility and reemerges. And I think, again, we're seeing the U.S. lead the charge out of the COVID year." - Moelis & Company (MC) CEO Ken Moelis
"Halfway through 2021, I am increasingly optimistic about the strength of the global recovery. As vaccine rollouts gain momentum and lockdown restrictions ease, we're seeing dramatic increases in hiring optimism. The pace of the recovery is strong, with the hiring intent picking up much faster than after the previous economic downturn." - ManpowerGroup (MAN) CEO Jonas Prising
The Delta variant is a worry but most of the risk is to unvaccinated people
"The unvaccinated still face an elevated risk of serious illness and death from COVID-19. In fact, recent reporting says that over 97% of hospitalizations are for unvaccinated people" - United Airlines (UAL) CEO Scott Kirby
"What we try to do is get people to look at the data and the data are really striking. In the United States, 99.5% of the deaths from COVID-19 are among unvaccinated people. That is a statistic that just speaks for itself" - US NIAID Director Dr. Anthony Fauci
And a very large percentage of Americans are vaccinated
“…you know, we’ve done very well with vaccines, particularly among the elderly. More than 85% of individuals 65 years of age or older have received at least one dose. We know when you look at adults that we are now close to 70% of 18 years of age and older who have received at least one shot" - US NIAID Director Dr. Anthony Fauci
Inflation pressures persist
"…we've seen further incremental price increases across many commodities. Inflation is impacting as across the full spectrum of input costs in materials and packaging, and quite notably in freight and distribution costs." - Unilever (UL) CFO Graeme Pitkethly
We’re seeing strong wage inflation
"…we are seeing, especially for a number of manpower skill sets, some very strong wage inflation right now." - ManpowerGroup (MAN) CEO Jonas Prising
"I just think there is so much going on right now with inflation and the question about whether inflation is transitory or permanent. We've got labor inflation. We took a big move there. We'll see how that shakes out." - Chipotle (CMG) CFO Jack Hartung
It’s a workers’ market
"It is a workers’ market right now and, as a result, we are also beginning to see employers respond to what workers want; wage increases in places, more flexibility, skills development, and a clear commitment to ESG, especially clarity around an organization’s social and climate impact... Our most recent talent shortage survey of 42,000 employers in 43 countries found that 69% of employers globally, a 15-year high, are reporting difficulties hiring skilled workers across many industries…" - ManpowerGroup (MAN) CEO Jonas Prising
"…we are fighting a war for talent. And we are trying to do all sorts of -- we are hiring as many people as we can to -- in the junior ranks, especially to take the burden off you can imagine" - Moelis & Company (MC) CEO Ken Moelis
But inflation is not impacting demand
"Inflation, as we have previously mentioned, has been above average this year and is trending to 5% to 6% for the year in total. This has had no meaningful impact on demand and is passed through the channel as is typically the case. Overall, the unprecedented demand for our products has strained the manufacturing capacity and supply chains in the industry" - Pool (POOL) CEO Peter Arvan
Is the inflation transitory?
"I agree with the Federal Reserve. I think inflation is in principle, we have a transitory situation here, and things will look different by the end of the year." - AutoNation (AN) CEO Mike Jackson
“...there is so much going on right now with inflation and the question about whether inflation is transitory or permanent" - Chipotle (CMG) CFO Jack Hartung
International:
ECB expects transitory inflation
"In support of its symmetric two per cent inflation target and in line with its monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target." - ECB Press Release
International travel not expected to be back until H2 2022
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Emerging market vaccine manufacturers are starting to kick in
"We're starting now to see some of the emerging market vaccine manufacturers kicking in and ramping up. There's three in China to say an example. Another one in Russia, of course, and several more. And they're just starting to kick in. So, we expect that all to provide really some sustained strength for some period of time." - Danaher (DHR) CEO Rainer Blair
“Pfizer and BioNTech today announced the signing of a letter of intent with The Biovac Institute…a Cape Town-based, South African biopharmaceutical company, to manufacture the Pfizer-BioNTech COVID-19 Vaccine for distribution within the African Union…Biovac will perform manufacturing and distribution activities within Pfizer’s and BioNTech’s global COVID-19 vaccine supply chain and manufacturing network, which will now span three continents and include more than 20 manufacturing facilities” - Pfizer (PFE), BioNTech (NTGN) and Biovac joint press release
Financials:
The fundamentals of the M&A market are changing
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Unicorns are their own asset class
"I read somewhere, I think, yesterday, that we're up to 900 unicorns. If you would have asked me 6, 7 years ago, 5, 6 -- 5 years ago, 4 years ago maybe, what was our coverage for venture capital, I would have said really not our client base. But when you have 900 unicorns that I think have a market capitalization now of $3 trillion, that's another asset class that will do something. Some might go public, but some will M&A" - Moelis & Company (MC) CEO Ken Moelis
Trading volumes higher than 2020 but moderating from Q1 2021
"Continued global interest in financial markets, amid the search for higher yield, led to industry trading volumes that are still above the activity level of 2020 in most products. Mean stock trading volume came down from the extreme highs of the first quarter" - Interactive Brokers (IBKR) CFO Paul Brody
Business travel is bouncing back
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People are expecting to go back to offices after Labor Day
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Office vacancies are still high in coastal markets
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Consumer:
Chipotle retaining 80% of digital sales from covid
"So I think we mentioned this in our comments earlier. But we hung on to about 80% of our digital sales and we're seeing about 70% of our dining room sales recaptured of where we were pre COVID. And what we're seeing is the overlap is still in that 15% plus range, people doing both channels, which leaves the door open for a lot of incremental occasions or different occasions" - Chipotle (CMG) CEO Brian Niccol
Its lunch business is bouncing back as people return to the office
"The one thing that is driving some of the bounce back in our dining room business is, we are seeing more business at lunch …I would tell you that I think the most important leading indicator for us is we're starting to see our lunch business come back. And what's great about that lunch business is, it's usually an individual that, frankly, we haven't seen in a while" - Chipotle (CMG) CEO Brian Niccol
Customers still want to come to the store for the final decision on cars
"So the way we think about digital is the customers want to engage in a digital process, where they are empowered and it’s a high value. However, they still want to come to a store for final delivery and final decision. And you might say, well, how can that be? What is the answer there? Well, they actually feel more empowered coming into the store than they do having the car show up in a driveway. That’s in over 90% of the situations. I’m not saying there aren’t exceptions to that." - AutoNation (AN) CEO Mike Jackson
Technology:
Semiconductor supply chains will be challenged into 2022
"I think, clearly, we've seen in 2021, also we could say, the reaction of the industry at large, the electronic industry to the COVID year. So you saw, you would say, a catch-up effect. I think that will stretch into 2022. Some of the supply chains have been disrupted, and it takes a bit longer. But longer term, it's what I said earlier." - ASML (ASML) CEO Peter Wennink
“…a strong demand environment continues to stress the supply chain. While I expect the shortages to bottom out in the second half, it will take another 1 to 2 years before the industry is able to completely catch up with demand." - Intel (INTC) CEO Pat Gelsinger
It sounds like Intel is gearing up for M&A
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Facebook is a metaverse company
"I think all of these different initiatives that we have at Facebook today will basically ladder up together to contribute to helping to build this metaverse vision. And my hope, if we do this well, I think over the next five years or so, in this next chapter of our company, I think we will effectively transition from people seeing us as primarily being a social media company to being a metaverse company...you can think about the metaverse as an embodied internet, where instead of just viewing content — you are in it. And you feel present with other people as if you were in other places, having different experiences that you couldn’t necessarily do on a 2D app or webpage.“ - Facebook (FB) CEO Mark Zuckerberg
Industrials and Transport:
Supply chains are heavily disrupted and this will continue into H2 2021
"…the global supply chain is disrupted as I've seen it in my 25 plus years in retail and everyone is working hard to just keep inventory in their stores." - Tractor Supply (TSCO) CEO Hal Lawton
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Automotive supply and demand could remain out of balance into 2022
"You can't find a used car, you can't find a new car. It's another market where demand is outstripping supply. We're close to -- we stay close with our auto customers. We've seen rolling shutdowns and auto plants that we serve. And that continues to persist. When we came into the year we started to see the problem. The problem seems to continue to move to the right. It's going to impact our third quarter.. just staying close with the customers and we do know there's pent-up demand going into next year. that will help a lot of other markets that we serve. Think of the metals market, plastics, all those are inputs into the auto industry today and hopefully, it provides another incremental growth lever that will be pulled as we move into '22. But there's -- Everybody sees it. There's a lot of pent-up demand. The auto production today has continued to come down given the supply constraints out there" - CSX (CSX) President and CEO James Foote
But maybe there are some green shoots?
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