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Bad Weather in Asia, Freight Delays in Baltimore Shipments have been held up departing Asia as well as arriving in the US. Severe weather and the resulting congestion in ports is causing delays of up to a week at key gateways throughout ports in Asia, threatening to delay outbound seasonal merchandise. Meanwhile, more than two months after the tragic event that brought down the Francis Scott Key bridge, claimed the lives of 6 bridge workers and brought traffic in the Port of Baltimore to a halt, the barge Dali, the size of three football fields, was finally towed safely into port. The crew remains on board while FBI investigations continue into the event. The port authority hopes to have the port itself back to normal operations in June. Meanwhile, the summer weather season in the US is off to a tumultuous start, with a record number of powerful tornadoes throughout the Midwest and the coming hurricane season in the Gulf forecast to be one of the worst on record. Walmart Scales Up, Target Scales Down What’s responsible for Walmart’s solid financials and market growth? Continued traction with upper-income shoppers is one of the factors behind Walmart’s impressive 6% year-over-year improvement in sales and healthy increase in profits. CEO Doug McMillon says Walmart is not trying to chase sales from the $100,000+ a year crowd. However, they’ve made considerable investments in areas that are likely to help them retain wealthier shoppers weary of rising prices and stubborn inflation who came in looking for everyday low prices and good selection and liked what they found. Walmart is plowing cash into renovating their stores and is on track to overhaul 900 locations this year as well as build new stores. Their "store of the future" design features brighter lighting, better signage, and a space that is generally more inviting to those who want to wander the aisles as well as to busy shoppers trying find something in a hurry. Walmart is also expanding their product selection in stores, and recently launched a premium private label brand, Bettergoods. The number of third-party sellers on their marketplace grew by more than a third in the US, and product listings now top 420 million items. That makes ecommerce more convenient for customers. Delivery sales and curbside order pickup continue to grow. McMillon says customers are looking for two things: low prices and shopping convenience. Walmart has always been known as the low-price leader but is now developing a real reputation for being a convenient place to shop as well. McMillon reiterated they are being very mindful not to alienate their cost-conscious customers and are committed to making sure they continue to offer them lower-priced options. The number of grocery rollbacks, which amount to temporary sales, were up 45% in April. Walmart looks and feels more like Target, according to retail experts. Analysts say the nicer stores, upscale merchandise, and ultra-convenient pick-up and delivery are a winning combination. Meanwhile, Target is slashing prices on 5,000 items, mainly grocery, household goods and beauty/personal care items in order to boost lagging sales and lure back customers. The big price reductions were heavily promoted through a multi-media campaign. Credit Card Delinquencies Climb The share of credit-card and auto loans going into serious delinquency continued to rise across all age groups in the first quarter of 2024, according to the New York Fed. An increasing number of borrowers missed credit card payments, which is an indication of what the Fed refers to as “financial distress,” or as people put it, postponing Peter to pay Paul. It is the highest level of serious delinquency (90 days or more past due) since 2012. Delinquencies fell to historic lows during the pandemic as consumers spent less and were able to accumulate savings and pay down debt with funds saved and economic stimulus payments. But now nearly one-fifth of Americans have maxed-out their credit. Consumer Spending’s Silver Lining Older Americans are increasingly fueling consumer spending, benefitting from big gains in the stock and housing markets. Much of their spending is going toward higher-priced services like travel, health care and entertainment, which puts further upward pressure on those prices and contributes to inflation. This type of spending is relatively immune to interest rates because these consumers rarely borrow. Affluent older Americans who invest in government bonds may even be benefitting from sustained higher interest rates as bond yields have increased, generating more income for bond holders. The “wealth effect” of rising home and stock values gives people confidence to increase their spending. Economists believe that’s one big reason why the economy has defied expectations of a sharp slowdown. The resilience and strength of the economy is contributing to inflation sticking around longer than anticipated and has thrown a monkey wrench into the Fed’s plans to lower rates. By the Numbers: Since 2018 household wealth has grown nearly 9% a year. Household wealth grew by an average of 5.5% a year in the decade after the 2008-2009 Great Recession. Stock prices are about 72% higher than they were five years ago, as measured by the S&P 500 index, the index most closely tracked by professionals. Home values have gone up a staggering 58% from the end of 2018 through 2023, according to the Federal Reserve. Americans’ wealth has ballooned to $147 trillion at the end of 2023 from $98 trillion at the end of 2018. Adjusting for inflation, the gains are less dramatic, but still well above average. Wealth for the median household rose 37% to $193,000 from 2019 to 2022, the sharpest rise on record since the 1980s according to the Fed. Wealth is also disproportionately held by older Americans. Americans ages 65 and over make up about 17% of the population, up from 13% in 2010. People ages 55 and over now own nearly three-quarters of all household wealth, up from 68% in 2010, according to the Fed. And the wealthiest one-tenth of Americans own two-thirds of all household wealth. Meanwhile, younger Americans are struggling. While the job market is good, they are dealing with a combination of expensive home prices, high mortgage and interest rates and increasing costs for childcare, making it much harder to buy a first home or a new car. In some cases, the parent with the lower-paying job is choosing to stay home and provide day care. © Robert Bosch Tool Corporation. All rights reserved, no copying or reproducing is permitted without prior written approval.
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