The Small Balance Intersection Update - December 4, 2024

Did You Know:

Rockefeller Center’s Christmas tree will be lit: The lighting ceremony will air tonight at 8pm ET on NBC and feature performances from Jennifer Hudson, the Backstreet Boys, and the Radio City Rockettes. The 70-year-old Norway Spruce will be topped with a star that has 3 million sparkling crystals on its 70 spikes and will be decorated with 50,000 LED lights on 5 miles of wires. For the first time since 1959, the country’s most famous Christmas tree came from Massachusetts.

In 1909: The first White House Christmas tree was set up under President William Howard Taft.

Supply Chain Lane

Manufacturing Struggles Amid Tariff and Inflation Challenges

The November ISM Manufacturing Index reached 48.4, a five-month high but still below the expansionary threshold of 50, highlighting persistent struggles in the manufacturing sector. New orders, at 50.4, were the only subcomponent in expansion territory, marking their first rise above 50 since March and reflecting a potential recovery in bookings. Despite this, durable goods data showed a 0.2% drop in non-defense capital goods orders (excluding aircraft) for October, tempering expectations for broader capex strength. Inventory levels surged by 5.5 points to 48.1, raising questions about whether this reflects tariff concerns or organic demand shifts.

Tariffs remain a looming factor, reminiscent of patterns seen during former tariff disputes, where ISM Manufacturing declined sharply following new trade barriers. Comments from purchasing managers revealed a mix of concerns, including capacity issues in U.S. manufacturing and a pivot back to domestic production among some customers. Price pressures have eased, with the "prices paid" index declining by 4.5 points to 50.3, but inflation still influences purchasing decisions, particularly in consumer-facing industries like food and beverages. Employment remains a mixed bag, with the index improving but staying in contraction for the sixth consecutive month, consistent with layoffs and cautious hiring.

As firms brace for tariff uncertainties, potential disruptions to supply chains and capital expenditures remain a concern. Coupled with mixed economic signals and the Fed's focus on manufacturing inflation, the outlook remains challenging. Friday's broader jobs report will provide further clarity on the sector's labor market and economic momentum.

For more details, view the full analysis here.

Declining Spirits

Stoli’s U.S. Unit Files for Chapter 11 Bankruptcy

The U.S. arm of Stoli Group, known for its iconic vodka and Kentucky Owl bourbon, has filed for Chapter 11 bankruptcy protection. The company reported over $100 million in assets and liabilities between $50 million and $100 million in its Texas court filing. Stoli Group (USA) LLC, which oversees a dozen spirits and wine brands, including Elit vodka, Bayou vodka, Villa One tequila, and Achaval Ferrer wine, attributed the move to ongoing financial challenges. Notably, Kentucky Owl bourbon, a premium product with bottles priced as high as $400, is among the company's key offerings.

Under Chapter 11, the company will continue normal operations while negotiating a financial restructuring with creditors. Stoli’s filing marks the second major alcohol producer to file for bankruptcy in 2024, following California-based Vintage Wine Estates, which cited reduced wine demand after the pandemic. The beverage industry’s recent struggles highlight broader pressures, including shifting consumer preferences and rising production costs. Stoli’s case reflects potential turbulence in the premium spirits market despite growing interest in high-end alcohol products.

The bankruptcy filing was submitted to the U.S. Bankruptcy Court for the Northern District of Texas under case number 24-80146. The restructuring process will aim to stabilize the company's financial position while ensuring continued market presence for its diverse portfolio of beverages.

For the full article, visit Bloomberg.

Steady Climb Ahead

Pending Home Sales Extend Recovery Streak

Pending home sales rose 2.0% in October 2024, marking the third consecutive monthly gain, according to the National Association of REALTORS? (NAR). Year-over-year, contract signings increased by 5.4%, with all four major U.S. regions showing growth compared to both the previous month and October 2023. The Pending Home Sales Index (PHSI), a forward-looking measure of housing activity, climbed to 77.4, continuing to recover from suppressed levels seen over the past two years.

Regional performance was led by the Northeast, with a 4.7% monthly increase and a 7.2% year-over-year gain. The Midwest followed with a 4.0% rise from September and a 1.8% annual increase. In the South, the index edged up 0.9% for the month and 2.5% year-over-year, while the West posted a modest 0.2% monthly gain but a significant 16.8% annual improvement. NAR Chief Economist Lawrence Yun attributes the momentum to increased housing inventory, sustained job growth, and support from record-high stock market levels benefiting upper-end buyers.

Notably, SentriLock lockbox openings, which signal property showings, rose 7% compared to October 2023, suggesting stronger buyer engagement. While mortgage rates have risen slightly following the Federal Reserve's recent rate cuts, market dynamics remain favorable. Expanding contract signings in traditionally high-cost regions underscore growing activity among affluent buyers.

The continued rebound in pending sales suggests a healthier outlook for the housing market, supported by steady economic conditions and improved housing supply. The next existing-home sales report for November is expected on December 19, offering further insights into this recovery trend.

For detailed insights, read the full report here.

Prosperity Lane

Young Professionals Drive Spending Surge in 2024

Young professionals, particularly higher-income Millennials and Gen Z, have seen an uptick in discretionary spending in 2024, fueled by rising after-tax wages. Bank of America data reveals that credit and debit card spending growth among higher-income households reached 0.9% year-over-year (YoY) in October, driven significantly by younger generations whose spending rebounded from negative growth in 2023. This demographic has also seen stronger wage growth, with after-tax wages rising to 3.3% YoY in October, boosting their ability to spend on non-essential categories by over 2.5 percentage points YoY.

Improved economic sentiment has also played a role; a Bank of America survey found 29% of Gen Z and 40% of Millennials expect the economy to improve in the next year, compared to lower optimism in 2023. Additionally, 64% of Gen Z and 72% of Millennials reported salary increases in the past year, reinforcing their spending capacity. Despite these trends, Millennials and Gen Z own only 10% of total financial assets, suggesting wealth effects are less influential than income changes.

Job openings in higher-wage industries like finance remain above pre-pandemic levels, indicating a labor market favorable to higher-income younger generations. This could sustain their wage and spending growth, underscoring their role in driving consumer spending trends. The findings highlight a generational shift, with younger professionals becoming increasingly optimistic about their financial prospects.

Read the full report here.