Inflation Dips Again

In this issue of the peel:

• Inflation continued to fall in July. At this point, these reports are honestly getting boring as Fed Chair JPow hits his prime and just keeps on doing his job. The numbers didn’t change much for interest rates, but they’ll probably change your spending. Check it out below.
• MongoDB’s mid-earnings led to a huge up day while, much like a disease-ridden patient, Intel realized it might be healthier if it cut part of itself off… and investors love it. Meanwhile, AI-based search isn’t the Holy Grail (yet), and the hipster recession claims another victim.
• Trips are up, but spending is down as the American travel boom could be entering its descent. Many are settling for Tampa instead of Tulum in what could be the last sign of the pandemic wearing off.

Market Snapshot

Banana Bits

• Analysts call for the end of the peak-rates era and re-shift their focus .
• I can’t imagine why, but Americans are somehow less depressed about the country’s direction than we were before .
• Dynamic pricing is enriching companies while enraging consumers .

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Macro Monkey Says

Not A Boeing Plane

Nothing boils my blood more than those absolute morons that clap when their plane lands. Like, nobody claps for me when I finish a Daily Peel edition… :(

But hey, at least the plane landed with all its doors, no major software glitches, and didn’t strand passengers at the ISS. If people are clapping, the pilots did their job and landed softly.

Recently, markets have been clapping for Fed Chair JPow for the exact same reason— achieving a soft landing.

And just like my recent flight from Charlotte to Boston, neither was done on a Boeing plane. Let’s get into it.

What Happened?

On Friday, the Bureau of Economic Analysis (BEA) released the latest Personal Consumption and Expenditure (PCE), sizing up inflation and consumer spending.

Much like sunscreen and a cold beer, both were looking great in July.

Source

Headline PCE inflation clocked in at 0.2% for the month and 2.5% for the year. Excluding food and energy prices, core PCE inflation was also 0.2% for the month and a slightly higher 2.6% for the year.

Broadly, inflation continued to decline in July. Good prices decreased on both a monthly and annual basis, albeit by less than 0.1%.

Meanwhile, services prices continued to rip, up 0.2% monthly and 3.7% annually.

Once again, the usual suspect did most of the heavy lifting within services—shelter prices grew 0.4% for the month, the largest contributor to the monthly increase.

Excluding shelter prices along with food and energy—because who needs to live, eat, or use energy—the so-called “super core” inflation rose just by 0.1% in July.

As inflation declined, consumer spending continued to rise. Total spending grew 0.5% last month, an increase from June led by goods spending:

Source

That’s an especially good sign because the total amount spent on goods grew strongly despite slight price decreases, suggesting that the volume of goods purchased by consumers contributed more to the increase than prices, signaling healthy demand.

Digging into the spending data, we can see that price increases certainly contributed to July’s 0.5% increase. But, overall, outlays were indicative of a healthy consumer.

Source

Increases in recreational services, food services & accommodations, and furniture suggest that consumers aren’t scraping by as other spending reports in recent months have foretold.

However, at the same time, decreases in clothing and footwear spending—especially during peak back-to-school season—could imply some cutting among consumers.

Regardless, spending looked healthy because you apes are (apparently) raking it in. Disposable personal incomes grew 0.3% for the month, an increase from June’s 0.2%.

Source

However, some of you astute apes may have noticed that some math ain’t exactly mathin’ so far.

Spending grew by 0.5%, but income grew by just 0.3%. That means consumers are dipping into their savings to fund those payments, bringing the personal savings rate below 3% for the first time since June 2022.

The Takeaway?

Price increases continue to slow, apes are making more money, and we’re donating to the economy via spending at acceptable rates, but savings are taking a hit.?

Sounds like the American dream to me—and markets agreed—with stocks broadly rising on Friday while bond yields fell immediately after the release.

The odds of a 25bp vs 50bp cut at the Fed’s meeting in a few weeks barely changed as falling inflation mixed with falling savings signaled a healthy, but not booming, economy that would likely benefit from some monetary tightening.

Once again, the soft landing was confirmed. But that doesn’t mean we need to clap for JPow for simply doing his job. Like your pilot keeping you from tasting the broad side of a mountain, it’s Powell’s job to keep us from tasting a recession.

Fingers crossed, our economy’s plane wasn’t made by Boeing.

What's Ripe

MongoDB (MDB) 18.34%

• The shareholders of this database manager had better have thrown a rager this long weekend after the firm’s solid earnings. Maybe I’ll get an invite next time.
• Reporting $0.70/sh on $478mn in revenue, MongoDB crushed estimates for $0.49/sh on $464mn. 13% subscription growth carried out for the quarter.
• Margins fell and services revenue fell by 1%. But, since shares had fallen >50% since February, any positive news was especially appreciated.?

Intel (INTC) 9.49%

• You know sh*t’s not going well when you have to work with bankers. But, after? Intel’s performance through recent years, even bankers can’t make things worse.
• That’s what the market told us on Friday as shares popped, thanks to the chipmaker’s foreshadowing of a potential sale of “unnecessary businesses.”
• CEO Pat Gelsinger hinted at the sale(s) along with a plan to “revamp capital spending,” but no specifics were included. Like we said—it can’t get worse.

What's Rotten

Elastic NV (ESTC) 26.49%

• Eyeing the DOJ’s lawsuit against Google like a dog eyes its food, this AI search firm is waiting to eat the tech giant’s lunch. Safe to say that meal won’t start in Q3.
• Elastic NV beat estimates across the board with 18% revenue growth driven by a 30% increase in its cloud unit. However, weak guidance didn’t go well with its elevated valuation.
• The firm expects next quarter’s revenue to come in the range of $353mn and $355mn, while analysts were looking for $361mn.?

Ulta Beauty (ULTA) 4.01%

• The hipster recession continues to rage as Ulta Beauty posts its first earnings miss in four years. Traffic fell more than ticket prices rose.
• The beauty retailer reported a 0.9% increase in net sales but a 1.8% decline in comparable store sales. Margins fell across the board and net income fell 15.8%.
• This is likely evidence of an ongoing decline in discretionary spending, turning Ulta Beauty shares ultra-ugly and contributing to slashed guidance.?

Thought Banana

Increased Cruising Altitude(s)

It’s not just you that’s wondering, “How the f*ck did they afford that?” every time you open Instagram and see your “friends” on a beach in Tulum or a museum in Paris.

Everyone’s wondering the same thing—How are American consumers traveling so much, and how long can we keep this up?

According to Bank of America’s research, the trips are still?taking off, but spending may finally have entered its descent. Let’s dive in.

The Numbers

I guess we found out where consumer savings are going—the wallets of other countries.

Source

Early data suggests that 2023 may have been the all-time peak travel season, judging by credit and debit card spending for Bank of America account holders.

Travel spending remains well above 2019 but has fallen since 2023. Weighed against total consumer spending, per BofA, travel spending has declined more rapidly.

But is that gonna stop Americans from getting the hell out of here? Absolutely not. TSA passenger numbers continue to set records in 2024:

So, the total number of travelers for the January-August period increased annually in 2024, but total spending decreased as vacations ostensibly became less lavish.

Even among wealthier consumers, levels of luxury have been on the decline since last year.

While rich people posting pictures with geotags in Thessaloniki or St Bart’s has declined, luxury travel has recently outpaced standard travel. However, both remain in negative territory.

The Takeaway?

There’s a lot of ways to interpret this data. However, one thing is clear—average Americans appear to have less time and money to travel than in 2023.

The pandemic clearly shifted spending priorities, bringing vacations to the top. But, now that we’re more than 4-years post-pandemic, reality is unfortunately setting in.

In our view, the most likely interpretation of BofA’s data is that average Americans can no longer afford to travel as luxuriously as they previously could. Trips are up, but it seems that many more are choosing Tampa over Tulum.

The Big Question: Will travel return to its 2023 peak? Did the pandemic permanently re-prioritize how Americans want to spend their money?

Banana Brain Teaser

Previous

An open box in the shape of a cube measuring 50 centimeters on each side is constructed from plywood. If the plywood weighs 1.5 grams per square centimeter, which of the following is closest to the total weight, in kilograms, of the plywood used for the box? (1 kilogram = 1,000 grams)

Answer: 19

Today

Of the total amount that Jill spent on a shopping trip, excluding taxes, she spent 50% on clothing, 20% on food, and 30% on other items. If Jill paid a 4% tax on the clothing, no tax on the food, and an 8% tax on all other items, then the total tax that she paid was what percent of the total amount that she spent, excluding taxes?

Send your guesses to [email protected]

?

Never think that lack of variability is stability. Don't confuse lack of volatility with stability, ever.

Nassim Taleb

How Would You Rate Today's Peel?

?? All the bananas

?? Meh

?? Rotten AF

Happy Investing,

David, Vyom, Ankit & Patrick