Market Analysis

A Broad Look at Corporate America’s Comments on the Economy

So far, S&P 500 execs see resilient US consumers.

Editors’ Note: MarketMinder does not make individual security recommendations. The below merely illustrate a broader theme we wish to highlight.

S&P 500 Q1 2022 earnings season is underway, and while it is early days, the results are encouraging. With 135 companies reporting, earnings are up 7.2% y/y and revenues 11.6%.[i] Now, given some COVID restrictions remained in place a year ago, it is fair to say these figures got a small boost from the base effect (meaning, a depressed year-over-year comparison). But more interesting to us is just how optimistic so many businesses are about American consumers right now. While conventional wisdom would have high inflation denting consumer demand, businesses broadly don’t report seeing that. Don’t take our word for it, though. Here, courtesy of FactSet’s wonderful repository of earnings conference call transcripts, are some observations from America’s corporate executives.

First, though, let us reiterate our editors’ note above. We highlight the calls below not because we mean to issue security recommendations—we don’t, ever—but because we find the comments telling from a macroeconomic standpoint. When the entire world seemingly fears inflation causing a US or global recession, first-hand observations from the folks with their proverbial boots on the ground can help you put sentiment in perspective. After all, markets move on the gap between reality and expectations.

UPS – April 26, 2022

“So we don’t have direct insight to the consumer behavior. It’s more from what we’re hearing from our customers who are telling us there has been a bit of a shift from goods to services, and you’re probably experiencing that if you’d gone on vacation. So it seems like the hotels are full, the planes are full, and people are going out to eat, and, gosh, I was in Washington, D.C. last week and the bar was hopping at midnight, so people are spending money differently than they would.”

American Express – April 22, 2022

“[Travel & Entertainment] T&E spending did show a dip in January and early February due to the Omicron variant but spending then rebounded tremendously, reflecting pent-up travel demand and essentially reached 2019 levels for the first time since the start of the pandemic in the month of March. And this kind of T&E spending growth has continued right into early April.”

Snap-on – April 21, 2022

“Spending on vehicle maintenance and repair is up, and technicians are earning more than ever. They’ve been working, performing essential tasks, making a nice living. They’re undaunted by the turbulence and they are optimistic about the future of their profession, about the outlook of individual transportation and about the greater need for their skills as the vehicle part changes with new technology.”

Tractor Supply – April 21, 2022

“As it relates to the economy, so far the consumer has shown real strength and their ability to kind of navigate the inflation. And I think you’re hearing that today in our earnings call but also hearing it in many other earnings calls that have come out over the last week and there's a variety of reasons for that. I mean you’ve had strong wage growth across the country. You’ve got $2 trillion-plus of pent-up savings that people are starting to tap into now and you can see that in savings rate. You do see a little bit of credit card usage up. But I mean if you dig into that what you’re seeing is people using their credit cards and then tapping into their savings to pay those down with default rates not yet moving up.

I think the consumer is navigating this very well and any talk of recession at this point is premature.”

Equifax – April 21, 2022

“I don’t know how to talk about what environment this is. It’s certainly not a recession.”

American Airlines – April 21, 2022

“But we’re so far encouraged by what we see right now in two ways. First, demand continues to grow and grow at a meaningful pace. How long-lasting it is remains to be seen but if we’ve learned anything in the last 20 or 24 months, we can adjust [to] just about anything and do it pretty quickly.

And the other thing which is really encouraging is frankly spending by our co-branded credit cards. That is one where throughout the pandemic even though airline revenues fell, our co-branded revenues never fell nearly to the same degree and indeed we’re encouraged right now because our acquisitions are higher than before and our spend on the card is keeping pace with inflation. Indeed, on our card with Barclays, our spend is growing at a greater rate than inflation. So we are encouraged by that. There’s clearly a level of demand for our product and future anticipation of travel which is very promising, and we'll just see how it plays out.”

Dow Chemical – April 21, 2022

“Despite elevated inflation, consumer spending continues to grow and balance sheets remain healthy with household debt service levels at some of the lowest levels in the last 30 years. Industrial activity also remains robust with Global Manufacturing PMI continuing to point toward expansion.”

CSX – April 20, 2022

“Current demand remains strong across most merchandise markets, with shippers prioritizing environmental benefits of rail and pursuing lower cost options to offset inflation. The ongoing semiconductor shortage impacted automotive volumes through the quarter. However, we did see sequential improvement as consumer demand remains strong with dealer inventory levels low.”

Procter & Gamble – April 20, 2022

“Demand for our best-performing premium-priced offerings remains strong, as do our market share trends.

(Responding to a question about whether rising living costs were causing people to shift to low-end, cheaper products): Look, we’re not seeing it. We’ve seen consumers trade into [our] brands and trade up within [our] brand portfolio throughout the pandemic. Every quarter this fiscal year, we’ve seen consumers continue to trade up within [our] brand portfolio into higher premium propositions across most categories. That’s the mix effect you’ve seen on the gross margin and the positive mix effect on sales. So, we continue to see consumers stay within [our brand] portfolio and many consumers actually trading up within [our brand] portfolio as they see the benefit of those higher premium propositions.”

Prologis – April 19, 2022

“[Demand for logistics in real estate is] a lot broader than it used to be – very, very broad, too broad. So, we see our customers with their front foot forward and taking up more space. And that gives us comfort that we’re not facing a recessionary environment, at least not as it pertains to our business. Now, again, fuel costs are up. That’s taken a big bite out of the consumers’ pocket. There’s a war going on. We’re going to have midterm elections now soon. I mean, there are all kinds of imponderables. But so far, it hasn't translated into conservative behavior by our customers.”

Citizens Financial – April 19, 2022

“Credit metrics are all excellent. And so far, both our consumer and corporate customers are navigating well through the current challenges. … So, we feel really confident around the outlook. The state of credit and consumer [delinquencies] is at the lowest levels that’s ever been. And we continue to sort of beat to the positive almost every month on what we’re seeing on [net charge-offs] NCOs. So, I feel really good. And I think – and when you look at the other side of the ledger for the average consumer, they’re still showing a lot of excess liquidity. The money in consumer checking accounts are still at all-time highs, really hasn’t moved down. While we’re seeing a lot of velocity in customers using credit cards and spending and paying for things, it’s not adding to outstanding [credit balances].”

Bank of America – April 18, 2022

“So, could a slowdown in the economy happen? Perhaps. But right now, the size of the economy is bigger than pre-pandemic levels, consumer spending remains strong, unemployment is low and wages are rising. …

From our card spend data, we have seen a strong recovery in travel, entertainment and restaurant spending. In the upper right, you can see that. By the way, even with fuel costs up 40% or more from last year, fuel represents about 6% of overall debit and credit card spending and a lot less of overall spending, as cards you can see in the lower left is 21% of all spending. Importantly, despite March of last year including the stimulus bonus, we saw the spending in the month of March 2022 on a comparable basis to 2021 13% higher by dollar volume, and we saw a 7.4% increase in the number of transactions. So, both dollar volumes and numbers of transactions rose nicely. …

The consumers are sitting on lots of cash. Why is this true? Well, you know high wage growth, high savings by limited enabled spending, but what it means is there’s a long tail to consumer spend growth. And in April through the first two weeks, spending is growing even faster at 18% over April of 2021.”

Citigroup – April 14, 2022

“In US Personal Banking, we continue to see signs of how healthy and resilient the consumer is through our cost of credit and their payment rates. We see good engagement through key drivers such as card loans and spend volume growth. … When you look at the performance of our consumer customers, whether you're looking at the [non-conforming loan] NCL rate and where that’s trending, or you look at the 90-day delinquency and where that’s trending, still very strong. … I am more positive around the US economy and the US consumer than really any other geographies around the world, and that helps with so much momentum in the labor market. We’re seeing still quite a bit of excess liquidity sitting there in the back pocket of our consumers and very healthy balance sheets.”

Wells Fargo – April 14, 2022

“March was the eighth straight month in which inflation outpaced income with lower income consumers being most impacted by rising energy and food prices. That said, higher deposit balances and rising wages have thus far allowed consumers to weather these headwinds. We continued to see median deposit balances above pre-pandemic levels, up approximately 25% compared to 2020, but down from the highs observed in 2021. Consumer credit card spend remained strong, up 33% from a year ago. All spending categories were up with the highest growth in travel, entertainment, fuel and dining.

After strong growth in the first quarter of 2021 driven by stimulus payments, debit card spending increased 6% in the first quarter of 2022. Discretionary spending remained strong with entertainment up 39% and travel up 29% from a year ago. The increase in energy prices was reflected in a 27% increase in fuel spending.”

US Bancorp – April 14, 2022

“We do continue to expect in the [corporate payment systems] CPS business that travel and entertainment is going to continue to strengthen, and I think that that is a tailwind or an opportunity for us as we move forward. I would expect that there’s probably going to be a shift to some extent from what I would call durable goods that people were spending their dollars on in the past to more service-oriented sort of activities. But in terms of the overall level of spend, I feel like that will continue at least for some period of time. …

And I think there’s a lot more conversation around [business risks] in terms of whether or not there will be recessionary sort of pressures 12 to 18 months out. I would start by just saying when we end up looking at the economic outlook right now and kind of what we’re seeing, we continue to see a pretty robust environment.”

Delta Airlines – April 13, 2022

“There are clear signs of pent-up demand for travel and experiences as consumers’ spending shifts from goods to services and experiences, travel restrictions lift, and business travelers continue to return to the skies.”

JPMorgan Chase – April 13, 2022

“The consumer has money. They pay down credit card debt. Confidence isn’t high, but the fact that they have money, they’re spending their money, they have $2 trillion still in [their] savings and checking accounts. Businesses are in good shape. Home prices are up. Credit is extraordinarily good. So you have this, that’s one factor. That’s going to continue in the second quarter, third quarter. And after that, it’s hard to predict.”

Parting Thoughts

Now, all of the above reflects what just happened, which isn’t predictive. And we are sure that one could have found some examples of business leaders worried about the state of the economy. Nor are these or any business leaders’ forecasts guaranteed to come true. But in a quarter where the inflation rate finished above 8%, that so many businesses across multiple sectors are reporting robust consumer demand seems like a very good sign that for the time being, American consumers are resilient. Not to dismiss the pain that higher prices pose, but markets tend to be coldhearted to such things. They care about the gap between sentiment and reality, and for now, there is a lot of evidence that consumers are outperforming dreary expectations.



[i] Source: FactSet, as of 4/26/2022. Earnings Scorecard, blend of actual Q1 reports and estimates for companies yet to report.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.