🍽 The spending reset

Reaching for the grocery-brand peas… After years of stimulus-fueled spending sprees, consumers are finally starting to pump the breaks. Last month, US retail sales posted their biggest monthly drop since 2021 as shoppers cut back on holiday splurges. From McDonald’s to Amazon, most companies have hiked prices to offset higher costs. But as consumers rein in spending, the hiking spree could lose steam:

• Pantry staple Conagra said it plans to stop raising prices for kitchen faves like Chef Boyardee, Slim Jims, and Birds Eye — but that could change if inflation sticks.
• Booze giant Constellation Brands has raised prices of brews like Corona and Modelo more than usual, but is planning “more muted” increases this year as demand slows.
• Aisle all-star Procter & Gamble saw sales and profit fall last quarter while shoppers cut back on price-hiked brands like Tide, Charmin, and Crest as they opted for cheaper alts.

Charging it to the card… Despite stubborn inflation, consumer spending has stayed strong during the pandemic — thanks partly to padded stimulus savings. But Americans are running out of cash, and a fifth of adults say their monthly expenses are higher than their earnings. US credit-card debt is at an all-time high, and the personal-savings rate fell to a 17-year low in October. Meanwhile, big biz leaders like Chase’s Jamie Dimon and Elon Musk are warning of a global recession this year.

THE TAKEAWAY

It could get worse before it gets better… While spending’s slowing and prices are finally cooling, inflation’s not where the Fed wants it to be (read: still abnormally high). Plus, the labor market is still going strong. While the central bank has started to reduce the size of rate hikes, officials like Fed Chair Jerome Powell doubled down on their hawkish stance last week. A quarter-point hike is expected next month, and it could take until the end of the year (or later) for the Fed to actually start cutting rates.

Cloudy with a chance of growth stalls… Microsoft kicks off Big Tech earnings tomorrow during a rough time for tech titans. Seemingly everyone from Amazon to Google has announced mass layoffs this year — Amazon’s even ending its charity program to cut costs. Last week Microsoft said it was slashing 10K workers to prep for a recession. It’s expected to report its slowest sales growth in five years and its first earnings drop in eight. It’s not alone: Apple, Google, Amazon, and Meta are also expected to release lower quarterly earnings.

Big Gas energy… From Exxon to Marathon Petroleum, oil giants raked it in last year as gasoline prices soared, notching historically huge profits. In the first quarter, Chevron’s earnings more than quadrupled. Energy was the only stock sector that ended last year in the green. But prices at the pump have been falling: US gas prices fell 9.4% in December from November, and were down for the year. Still, overall energy prices were up 7% from last year. Chevron and Valero are expected to report revenue growth this week — but at a slower pace than last year.

IOU anxiety… The US hit its $31.4T debt limit last week, risking a scenario where the US government can’t pay its bills. Refresher: the govt spends more than it collects in taxes, so it constantly borrows. But there’s a limit to how much the Treasury can borrow through bonds/bills. Now the US risks defaulting on its debt, which would be disastrous. A default has never happened since lawmakers passed legislation to raise or suspend the ceiling every time (100 times since WWII). Treasury Secretary Janet Yellen plans to use “extraordinary maneuvers” until June to give lawmakers more time to agree on a solution.

AI lawsuits are here.… Generative AI tools like ChatGPT and DALL-E are trained on billions of texts or images scraped from the internet — many of which are copyrighted by human creators. Last week artists sued AI-art generators Stability AI, Midjourney, and DeviantArt, arguing they unlawfully used their copyrighted images. Getty Images sued Stability AI over the same thing. There aren’t clear rules around genAI use, but suits could set precedents for how to handle these cases. It could get thorny for companies like Microsoft, which plans to integrate genAI into its products.

• Wednesday: Netflix surged after reporting 3M more new subs than expected. But its revenue and profits were nothing to celebrate, and the “one-number era” could be over.
• 420: Elon Musk went to court over his infamous “funding secured” tweet about taking Tesla private. He’s used to ruffling feathers, but this trial could hit Tesla’s rep.
• Swing: Saudi-backed LIV Golf signed its first TV deal in the US with tween-fave network CW. LIV’s beef with the PGA has made it harder to secure revenue streams.

What else we’re Snackin’

• AI: GPTZero, an app that can help detect whether AI wrote a text, is drawing interest from educators and investors. A senior at Princeton who launched it said he fears the “Hallmark-ization” of writing.
• OOTD: Shein has become the most popular fashion brand thanks to trendy $5 dresses and never-ending styles. But the fast-fashion biz is deeply unsustainable and has a troubling human-rights record.
• Print: As shelter prices rise, 3-D printing could play a role in easing the housing crisis. A printer can create the shell of a simple building in as little as 24 hours.

Snack Fact of the Day

This Week

🧧Lunar New Year began on Saturday

• Monday: Earnings expected from Synchrony Financial
• Tuesday: Earnings expected from 3M, Microsoft, Johnson & Johnson, Verizon, Raytheon, Lockheed Martin, and General Electric
• Wednesday: Earnings expected from Tesla, Abbott Labs, AT&T, Boeing, NextEra Energy, Kimberly Clark, Levi, and IBM
• Thursday: New-home sales and initial jobless claims. Earnings expected from Visa, Valero, Mastercard, Comcast, Intel, SAP, Northrop Grumman, Southwest Airlines, and American Airlines
• Friday: Earnings expected from Chevron and American Express

Authors of this Snacks own shares: of Apple, Amazon, Exxon, Google, Microsoft, and Tesla

ID: 2693772