Why supply chains may soon outpace demand

M1 Team
M1 Team July 22, 2022
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Many Q2 earnings reports are falling short of estimates, but inflation sure isn’t on that list. See how soaring prices are affecting spending and other top news this week, including an airline’s big bet on 737s. 

In this edition: 

  • What falls as inflation rises 
  • Big banks’ earnings reports 
  • The next strain for the supply chain 
Stock data for 7/15/2022 to 7/21/2022
Bitcoin and Ethereum data for 7/14/2022 to 7/12/2022 
Dow Jones: 32036.90 (+4.59%) 
NASDAQ: 12059.61 (+7.19%) 
S&P 500: 3998.95 (+5.50%) 
Russell 2000: 1833.50 (+7.38%) 
Bitcoin: 23196.5 (+12.24%) 
Ethereum: 1578.21 (+32.33%)


Inflation cuts spending 

Pay raises have been historically high over the past year but continue to lag behind inflation rates. Year-over-year wage growth has held steady at 4% each month, while inflation boosted the cost of goods by over 9% in the past 12 months. 

As a result, workers haven’t experienced a month with year-over-year earnings growth since March 2021. 

Spending has increased thanks to rising prices. For example, spending on “food at home” is higher now than during the pandemic. But when you factor in inflation, people are consuming less. The exception? Dining out. Prices in the “food away from home” category rose less than 8% in June, but sales were up almost 14%.   

Despite the gap between pay and inflation, a meal out seems to be one of the few indulgences people continue to work into their budgets. 

Two differing graphs, on the left: Spending on food, grocery stores vs. Bars and restaurants. From 2008 to 2022, ending off with grocery stores at 70 billion and bars/restaurants at 86 billion. On the right: Change in price from a year earlier,  Food at home vs Food away from home, ending at 2022 with food at home at almost 12.5% and food away from home at 7.7%
Image courtesy of WSJ 

Big bank bombshells 

Goldman Sachs and Bank of America shared second-quarter results on Monday that surprised investors, with Goldman Sachs smashing expectations. These were the final two banks to report profits. Here’s a quick look at each report: 

Goldman Sachs (GS) 

  • Earnings per share: $7.73 adjusted vs. $6.58 expected 
  • Revenue: $11.86 billion vs. $10.86 billion expected 

Bank of America (BAC) 

  • Earnings per share: $0.73 adjusted vs. $0.75 expected 
  • Revenue: $22.79 billion vs. $22.67 expected 

David Solomon, Goldman Sachs CEO, repeated comments from other bank leaders by highlighting “increased volatility and uncertainty” in markets, rocked by inflation, interest rates hikes, and Russia’s invasion of Ukraine.  

Supply change 

Though shipping strains may finally be on the mend, weak demand is the next pressing problem for suppliers. Supply chain problems in the U.S. have eased back from their pandemic peaks — but so has consumer spending. This drop could throw economic growth into reverse and lead to inventory pileup. 

In research released this month, Citi economists wrote “pressures in the global good sectors, which have been a central driver of inflation, may finally be easing.” The issue, “is that this looks to be occurring on the back of a slowing in the global consumer’s demand for goods, especially discretionary goods, and thus may also signal rising recession risks.”

Below is the latest reading of U.S. supply strains from Oxford Economics

Title: Inching Back to Normal
Oxford's US supply-strain index has fallen for three straight months. Graph areas: Activity, Transportation, Prices, Inventory, Labor. Out of 20 index levels the highest reached is 17 in March 2022, since then it slowly decreased down the past 3 months, now at 15 from May 2022.
Image courtesy of Bloomberg

Quick hits 


Checking APY* is changing 

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To give Plus members even more powerful digital banking perks, we’re raising the APY on M1 Checking Accounts to 1.70%*, effective July 28.

Learn about the high-yield M1 Checking account >> 

*No minimum balance to open account or to obtain APY (annual percentage yield). APY valid from account opening. Fees may reduce earnings. Rates may vary.

This week in finance history

July 19, 1990 

Six companies set the record for the most IPOs issued in a single day. The businesses — Command Security, In-Store Advertising, MECA Software, Modtech Holdings, O’Charley’s, and Wisconsin Pharmacal — raised a collective $100.4 million. During a time of recession, this was a favorable sign that both the stock market and economy were recovering.

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