Year: 2021

Note: I will be in California for the next 3 weeks. Time zone, family matters and limited equipment could have an impact on the frequency, quantity and, perhaps, quality of my blogging.

Two Fed Officials Weigh Prospect of Speeding Bond-Buying Taper Fed Vice Chairman Richard Clarida and Fed governor Christopher Waller in separate appearances remarked on the possibility that the central bank could move more swiftly to end its asset-buying stimulus effort.

“The economy is in a very strong position” and “there is upside risk to inflation,” Federal Reserve vice chairman Richard Clarida said in a virtual appearance. When it comes to the possibility of speeding up the drawdown in the Fed’s bond-buying stimulus effort, “I’ll be looking closely at the data that we get between now and the December meeting, and it may well be appropriate at that meeting to have a discussion about increasing the pace” of the pullback in asset buying at the coming Federal Open Market Committee meeting, he said. (…)

“For my part the rapid improvement in the labor market and the deteriorating inflation data have pushed me towards favoring a faster pace of tapering and a more rapid removal of accommodation in 2022,” Mr. Waller said in a speech in New York. “The next few months will be critical…in determining how the tapering process plays out,” he added.

Mr. Waller said that ending the bond buying that expands the Fed’s balance sheet should happen before raising rates, and doing that swiftly gives the Fed options for when it can raise its now near zero short-term rate target. He said he would like to see the taper process done by the end of the first quarter.

“You could have a rate hike as early as the second quarter” if the taper was complete and the Fed decided that was the right choice for interest rate policy, Mr. Waller said. (…)

Mr. Waller was upbeat about the economy and said that given changes in the labor force, the nation is likely only two million jobs short of where it would have been had the pandemic not struck. If current job gain trends continue the jobless rate could soon fall below 4% which means “the labor market is rapidly approaching maximum employment.”

Meanwhile, inflation is rising due not just to supply-chain issues related to the pandemic, but also to high levels of demand, Mr. Waller said.

“Inflation pressures are becoming more widespread and may last longer into 2022 than I thought they would,” the official said, adding he is also concerned about rising inflation expectations held by the public. (…)

Discussions will heat up at the next FOMC meeting. On November 3rd, Powell said “The inflation that we’re seeing is really not due to a tight labor market” while acknowledging that it is “also demand related”.

But we can see the Fed’s narrative changing in real time. Waller is subscribing to the idea that the actual labor slack is not what the official numbers suggest, after Powell raised that possibility on November 3rd: “maximum employment can be measured in several ways. We look at a range of things. By many measures we are already at a very tight labor market, but the issue is how persistent is that”.

Some clues:

John Deere, Inflation Bellwether The company’s union workers win automatic cost-of-living increases, which should raise alarms at the Federal Reserve.

By the WSJ Editorial Board

Credit Deere & Co. employees for reading the moment. After a month or so on strike, they won a contract this week that their union negotiators might not have dreamed of a year ago. The episode reveals how inflation is seeping into business decisions and worker demands.

Some 10,000 union workers for the farm-equipment giant approved a labor contract Wednesday, ending a strike that began Oct. 14. The contract includes an $8,500 restart bonus, an immediate 10% raise, two 5% raises and two large bonuses through 2026. Total retirement benefits for an average worker will rise by $270,000. Most important as an economic signal, wages will be adjusted each quarter based on inflation.

Deere workers rejected two earlier agreements that their United Auto Workers reps brought for a vote. The original deal offered 5% and 3% raises, which were dwarfed by the 6.2% rise in consumer prices since October 2020. When the negotiation started, the Biden Administration and Federal Reserve said inflation was “transitory.” But manufacturing workers read the price signals better than the politicians.

Deere is on pace to have its most profitable year in 2021, despite the drag from supply-chain issues. But the labor agreement will take a big chunk of future earnings, costing north of $3.5 billion. To address workers’ fears about long-term living costs, Deere had to offer raises with a looser connection to each worker’s expected productivity.

Congrats to the Deere workers, but the alarm bell for the Fed should be the automatic cost-of-living adjustments. Those were a feature of the 1970s economy but faded as inflation was brought under control. The longer inflation stays high today, the more workers will demand COLAs, putting employers on the hook for long-term costs they can’t control. Once COLAs are embedded into labor contracts, they become hard to wring out. This is how you get a wage-price spiral and durable inflation.

From today’s WSJ:

(…) Labor accounts for about 15% of Deere’s overall cost of goods sold, analysts said. The 10% pay raise and $8,500 bonus that each UAW member will receive and raises awarded to nonunion employees as well are expected to cost Deere about $235 million in the first year of the six-year contract, said Stephen Volkmann, an analyst for Jefferies Research Services LLC. He estimated that the higher cost will shave nearly 1 percentage point off Deere’s operating margin.

Those profits, Mr. Volkmann said, could easily be recovered by higher prices or greater output at Deere factories. Deere increased prices on large farm equipment by about 8% during its just-concluded fiscal year, the company said.

• Lehigh Valley warehouse offering up to $28 an hour for news hires amid labor shortage

In a push to hire 160 more workers, a North Whitehall distribution and fulfillment center is offering wages up to $28 an hour plus what the company is tooting as a “competitive benefits package.”

United Natural Foods, Inc. (UNFI), one of the nation’s largest grocery store distributors, is offering warehouse and driver positions.

Pay for those positions ranges $17.50 to $28. A full benefits package, including medical, dental and vision plans; a 401(k) plan with company match; an “early access” to paychecks program; and entry at the Lifestyle Distribution Center are included.

A company spokeswoman said the Lifestyle Distribution Center soon will include a wellness center, company store, café, video game room and an outdoor pavilion on-site. (…)

Uline in October held a hiring event looking to employ 90 workers for its Upper Macungie Township distribution and fulfillment center. The Wisconsin-based employer was offering wages up to $27 hourly and a $2,000 sign on bonus. (…)

• High shipping costs could lift global inflation by 1.5% in 2023, a UN report said. (Dow Jones Newswires via the WSJ)

This OECD chart (via The Market Ear) shows how stimulus checks boosted Americans’ goods splurge

REAL GOODS CONSUMPTION

This extraordinary demand, 10% above trend, is pulling goods inflation up, worldwide.

• Be Ready for German Inflation Spike Near 6%, Bundesbank Says

When will the bond market care?

As to equity markets, the Rule of 20 P/E (actual P/E minus core inflation) is at its cyclical or secular peak and the Rule of 20 Fair Value (yellow, R20 P/E * EPS) is about to turn lower as inflation begins to rise faster than earnings:

CMG Wealth’s Steve Blumenthal kindly shares this NDR chart showing that nominal equity returns turn negative when inflation is rising well above its 5-year trend:

TECHNICALS WATCH

Wide Selection of Stocks Pushes Market Higher Investors see the move as a promising indication of the rally’s durability, but signs of weakness are lurking beneath the surface of major indexes.

(…) The advance isn’t limited to shares of the biggest U.S. stocks. The Russell 2000 benchmark of small-cap stocks is up 2% in November, in line with the S&P 500’s advance, as investors bet on companies they hope can react quickly to rising inflation.

And a popular technical indicator for market breadth has trended higher. The share of S&P 500 stocks closing above their 50-day moving averages rose early last week to 75%, its highest level since May. (…)

Near the end of the week, however, there were signs of weakness under the surface of major indexes.

The percentage of S&P 500 members above their 50-day moving averages ticked lower. And even as the Nasdaq Composite closed at a record Thursday, 409 Nasdaq stocks made new 52-week lows, the highest daily number since March 2020, according to Willie Delwiche, investment strategist at All Star Charts.

“I don’t know if it will be the case this time, but when the market is heading for trouble, new low lists crescendo in size,” he wrote. “This is not unlike tremors before an earthquake.” (…)

My favorite technical analysis firm also notes that nearly 75% of NYSE stocks have dropped out of short-term uptrends and that some of the recent moves came with mediocre demand and poor breadth. The word is “watch small caps”. The good news is that the IWM’s moving averages have all turned back up.

Merkel Says Covid Spike ‘Worse Than Anything We’ve Seen’

China’s Central Bank Signals Easing as Economic Risks Mount: In its latest quarterly monetary policy report published Friday, the People’s Bank of China removed from its policy outlook a few key phrases cited in previous reports, including sticking with “normal monetary policy.”

U.S. Intel Shows Russia Plans for Potential Ukraine Invasion

• France Warns of ‘Grave Consequences’ If Russia Invades Ukraine

FRIENDS AND FAMILY

A proposed U.S. tax credit for electric vehicles is stirring up disagreement at home and abroad. The provision would give consumers a $12,500 tax write-off for buying electric vehicles assembled by union workers using American-built batteries, but less for those made in nonunion factories.

The WSJ’s Julie Bykowicz and Siobhan Hughes report the element in President Biden’s social spending package has sparked fierce lobbying by nonunion auto makers like Tesla and Toyota who say it rewards the United Auto Workers and rival General Motors, which both pushed for a pro-union component, at the expense of the environment.

The shift away from combustion engines is a challenge for the UAW because electric vehicles are simpler to build, requiring fewer employees and potentially lower wages.

The proposal is also casting a cloud over a trilateral meeting with Canada and Mexico, whose leaders say it could divert auto investment dollars away from their countries. (WSJ)

Looks like the Biden team forgot to specify that batteries, the most important EV parts, must also be union-built.

Global IPOs Blow Past $600 Billion Mark in Best Year on Record

The Art Market Surges, Selling $2.3 Billion in Works Artists at Sotheby’s, Christie’s and Phillips broke records, trophies sold for 10 times their asking prices and Asian bidders phoned in to win works by Rothko, Giacometti, Guston

The art market is sizzling. The world’s chief auction houses sold more than $2.3 billion worth of art during a two-week sale series in New York that ends Friday. Back in person en masse for the first time since early 2019, collectors chased after high-end art with a voraciousness not seen since a few years before the pandemic.

Rarely do auction houses sell every single object they have to offer, but Sotheby’s and Christie’s achieved that feat a couple of times as collectors splurged on everything from classic paintings of windswept fields by Vincent Van Gogh to spray-painted images by street artists such as Banksy to a rare edition of the U.S. Constitution. (…)

Sotheby’s auctioneer Oliver Barker took bids in the cryptocurrency ether for some Banksy works, while NFT artists populated high-profile livestreamed sales. A group of cryptocurrency investors organized as ConstitutionDAO narrowly lost a bid to win the $43.2 million Constitution after crowdfunding $40 million-plus over a 72-hour span. Chicago hedge-fund billionaire Kenneth Griffin still outbid them all. (…)

“The art market is truly firing on all cylinders.”

Inflation is everywhere. Now read this:

Soggy French Fries? Blame the Cooking Oil Price Spike. ‘It’s Pretty Much Liquid Gold.’ Cooking oil costs are up, so restaurants are stretching supplies

If your french fries are tasting funny these days, it might be the oil.

A biofuels boom is driving up demand for vegetable oil, boosting costs for food manufacturers and restaurants who use it to bake bread and fry chicken, among other things. (…)

In some regions, restaurants are battling thefts of used oil, which has also risen in value. (…)

Futures prices for soybean oil, a key cooking oil, notched records this summer after climbing 70% in the first six months of this year. Used cooking oil recently sold for 66 cents a pound, nearly 80% higher than a year ago, according to price-reporting agency Fastmarkets The Jacobsen. (…)

Soybean Oil Prices

(Federal incentives and regulations in places such as California, designed to cut greenhouse-gas emissions, are pushing up demand for products such as soybean oil, animal tallow and used cooking oil, which are used to make renewable diesel.

Rising cooking-oil costs have helped drive menu prices for City Line’s chicken wings 20% higher this year (…).

Curious to know if the BLS caught this in the CPI?

Prices of “Other fats and oils including peanut butter” are up 11% YoY in October while CPI-Food is up 5.3%. Since “peanut butter” is up 6%, other oils must be up quite a bit more. “Other fats and oils including peanut butter” are up 20.2% annualized in the last 3 months, peanut butter “only” 14.7%.

Meanwhile, CPI-Food-away-from-home is up 5.3% YoY but “Limited-service-meals-and-snacks”, presumably including fast-food, are up 7.1% YoY and +9.1% a.r. in the last 3 months.

And FYI, CPI-Food-at-home is up 5.4% YoY but +10.8% a.r. in the last 3 months.

While the Fed talks about transitory used car prices, up 26.4% YoY but 3.3% of the CPI for something people buy only occasionally, food costs (14% of the CPI) are seen exploding every time people go to the supermarket or eat out.

I constructed a “CPI-Essentials” index weighing Food, Energy and Shelter by their respective weight in the CPI. It’s up 6.3% YoY in October:

Here’s the MoM trend: +8.1% a.r. in the last 3 months after +6.1% a.r. in the previous 7 months. This CPI-Essentials index peaked at +3.3% in 2018 and eased off to +2.4% in 2019 and +1.6% in 2020.

So far, energy and food account for most of the push. Shelter inflation as measured by the BLS is still relatively low at 3.5% YoY and +4.5% a.r. in the last 3 months but real world rents are rising at a faster rate per the Burns Single-Family Rent Index™ (BSFRI).

The push for COLAs will intensify.

BTW, CPI-carbonated-drinks is up 5.2% YoY but +14.3% a.r. in the last 3 months.

Wanna switch to coffee to get your caffeine fix? Coffee Nears Decade High on Mounting Supply Worries

Creamy coffee? “Milk output in the U.S. is on a historic weak streak, potentially signaling climbing costs for dairy products. (…) Farmers are probably feeding their animals less, said Donnay. The cost of grains like corn is soaring this year due to drought, storms and robust demand. Labor and energy costs are also more expensive. It’s all hurting farmers’ bottom lines and making it difficult to afford feed. (…) The dairy cow herd also continues to shrink. This should eventually lead to higher prices for consumers, Donnay said.” (Bloomberg)

BTW, gasoline prices in California average $4.75/g and are often posted at $4.95/g. And if you wish to visit Yosemite, better fill her up before going, otherwise you will pay $6.09/g in Lee Vining.

No wonder there are so many Teslas here.

But California EV owners are not getting it so much cheaper: the 23.9 cents per kWh Los Angeles households paid for electricity in October 2021 is 68.3% more than the nationwide average of 14.2 cents per kWh.

This inflation bout better be transitory because it’s now gotten big enough to impact the economy.

U.S. Unemployment Claims Again Edge Down

Initial claims for unemployment insurance edged down 1,000 in the week ended November 13 to 268,000 from 269,000 the prior week; that earlier tally was revised slightly from 267,000 initially reported. The Action Economics Forecast Survey had expected 261,000 initial claims for the latest week. The 4-week moving average fell to 272,750 in the November 13 week from 278,500 the week before. Both the most recent week’s claims and the four-week average again set a new post-pandemic low since March 14, 2020 when initial claims were 256,000 and the four-week average was 225,500. (…)

In the week ended October 30 the total number of all state, federal, PUA and PEUC continued claims was 3.185 million, up 619,000 from the pandemic-period low of 2.566 million in the October 23 week, which was indeed the smallest amount since March 14, 2020, when continued claims totaled 2.103 million.. These figures are not seasonally adjusted.

Initial claims are now only 12K above the pre-pandemic reading of 256K from March 13, 2020. Bespoke adds

On a non-seasonally adjusted basis, that pre-pandemic low was finally taken out this week.  Unadjusted claims totaled 238.9K from 257K last week.  That is the lowest level since the first week of March 2020 when claims were a hair below 200K. With the program’s expiration now even further in the rearview, PUA claims continue to have a minimal impact of only 1,390.

From a seasonal perspective, 2021—particularly this fall—has been an interesting year.  For starters, claims have more or less returned to historically normal levels even when factoring in auxiliary programs. Furthermore, from Labor Day through the end of the year has historically marked a period of the year that claims have had a tendency to rise, but this year the opposite has been the case. In the context of that bucked seasonal trend, the current week of the year (46th) actually has a seasonal tailwind with claims rising week over week only 16.67% of the time since 1967.  In other words, this week’s drop could be expected but the new low it resulted in is thanks to seasonally unusual declines in weeks leading up to now.

Lagged one week to initial claims, continuing claims were the better part of the claims release.  Continuing claims fell to 2.08 million versus expectations of a decline to 2.12 million from last week’s reading of 2.16 million.  As with initial claims, that resulted in the strongest level for claims since March of last year when the reading sat below 2 million.

Speaking of seasonal adjustments, Macromaven’s Stephanie Pomboy suggests that the BLS’ number crunchers artificially inflated October’s retail sales data: “Whereas in the last 3 years they assumed Retail Sales would post a 4.7% increase in the month of October, this year they assumed only a 2.6% gain. Had they used the same seasonal [factor], yesterday’s [Tuesday’s] headline # would have been -0.4% (rather than +1.7%).”

Adding the rising inflation factor which contributed 1.0% to the 1.7% nominal gain, “adjusted adjusted” real retail sales declined 1.4% in October against a -0.4% decline in real labor income (aggregate weekly payrolls).

That said, the Chase Card Spending Tracker remains strong through November 13. Given consumers’ FOMO amid mediatized shortages and merchants’ “if you see it, buy it”, the risk of nasty surprises is really in December and after.

The Real Biden Bill: At Least $4.6 Trillion Program by program, here’s how Democrats disguise the real cost of their entitlement blowout.

By the WSJ Editorial Board

The Congressional Budget Office on Thursday released its “official” cost estimates for the House tax and entitlement bill, but don’t believe it. The CBO gnomes aren’t lying about a 10-year deficit estimate of $367 billion. They’re obliged to score the bill under rules that Democrats have rigged with multiple tricks that disguise the real cost by trillions of dollars.

Democrats phase out the biggest programs in the bill while paying for them with 10 years of tax increases. They phase-in other programs and off-load costs to the states. The Penn Wharton Budget Model estimates the House bill would cost nearly $4.6 trillion over 10 years if temporary provisions are made permanent, as most will be.

The Committee for a Responsible Federal Budget (CRFB) pegs the cost at $4.9 trillion if temporary tax credits and programs are made permanent through 2031. This would add $1.5 trillion to deficits over the next five years without additional tax offsets. (…)

Keep in mind that CBO this summer projected that annual deficits will already exceed $1 trillion on average through 2030, causing U.S. debt to swell by $12.8 trillion—and that’s before the infrastructure bill or this House bill. When the spending all kicks in, and the rich are all taxed out, the middle class will be hit with a huge tax increase. This is the most dishonest spending bill in American history.

Japan Plans $490 Billion Stimulus to Jolt Struggling Economy The government approved the package to support recovery from the Covid-19 pandemic, including cash payments to most families and some smaller companies.

The size of the package was nearly double what analysts were expecting earlier this month and amounts to about one-tenth of Japan’s gross domestic product. (…)

The plan by Japan’s Prime Minister Fumio Kishida, who took office in October, doesn’t include major tax increases and seeks to jump-start a sluggish recovery from the pandemic in the world’s third-largest economy. GDP shrank at a 3% annual rate in the July-September quarter, the second contraction in three quarters. (…)

Most families with children will get cash payments and vouchers worth nearly $900 for each child aged 18 or younger. The government will provide financial aid of up to the equivalent of $22,000 each for smaller companies that can demonstrate they were affected by the pandemic. Wage increases for nurses and care workers are also planned. (…)

Japan’s economy remains smaller than its pre-pandemic peak, while the U.S. and China have already made up for their pandemic setbacks and then some. (…)

Lawmakers in both Mr. Kishida’s ruling Liberal Democratic Party and in opposition parties have advocated greater spending while generally not making a major issue of the debt. Some in the LDP say it isn’t a problem now because Japan issues debt in its own currency, the yen, and its inflation and interest rates are both around zero. The government is currently paying less than 0.1% interest on its 10-year bonds. (…)

U.K. Budget Deficit Exceeds Forecasts as Debt Costs Triple

(…) Interest costs were 5.6 billion pounds ($7.6 billion) compared with 1.8 billion pounds in the same month in 2020, the Office for National Statistics said Friday. In the first seven months of the fiscal year, the costs were up 63%. (…)

Faster inflation may also prompt more Bank of England interest-rate increases, which markets expect to begin next month, further increasing debt-servicing costs. (…)

• Oh god, not again! The Brexit deal in chance of collapse… Boris Johnson considers invoking Article 16 in the Northern Irish protocol, which will throw the parties back at the negotiations table. This is a digital risk event for the GBP and BoE.

(…) Under the terms of the post-Brexit trade agreement, Northern Ireland was kept part of EUs single market for goods to avoid a need for checks along the Irish land border as goods enter EU. This means that products moving from Britain to Northern Ireland are subject to checks and controls, which according to the British government is damaging trade and supply lines. The European Commission has offered to simplify these a great deal, but Britain insists on a total rewrite of the protocol to remove most checks and controls.

The “nuclear option” Article 16 allows either part – Britain and EU – to suspend any part of the agreement that is causing economic, societal and environmental damage or trade diversion. The British government says this condition is clearly met, entitling it to invoke Article 16.

Data prints from August 2021 from the Irish Central Statistics Office reveal that exports from the Republic of Ireland to Northern Ireland had gone up 43% since Britain left the EU, whilst goods flowing in the opposite direction had gone up 77%. In contrast, 50% of Northern Irish businesses have said that the Protocol has had a negative impact on business with the rest of the United Kingdom. This trade diversion forms the context for why Britain are (probably) ready to invoke Article 16.

If Boris Johnson invokes Article 16, both parties should enter negotiations to find a solution and no measures can be implemented during the initial one-month negotiating period. Should negotiations fail, then Britain can adopt “unilateral measures” that will be reviewed every three month.

In practice, this could mean Britain stopping checks on goods that are being sent across the Irish Sea or on a more severe note, suspending further parts of the agreement like product standards, customs checks or VAT rules. Depending on the scenario, EU can take different “rebalancing measures”. This will most likely result in lengthy court proceedings. However, if Britain overrides the provisions on customs and the single market, the EU would respond more forcefully. (…)

• Lagarde urges patience at ECB despite ‘painful’ inflation surge Euro knocked by president’s dovish comments on need to avoid ‘premature tightening’ of monetary policy
• The Fed’s John Williams said longer-term price expectations have moved up “quite a bit,” and cautioned against letting that trend continue. He cited rising rents and supply constraints as major factors. The IMF warned that U.S. price risks are to the upside, which may require an accelerated policy response. (Bloomberg)

Chinese Developer Yango Agrees to a Bond Swap With Investors Chinese property developer Yango Group, on the brink of default. has received approval for a debt swap that will allow it to delay payments.

(…) The broader market for dollar-denominated Chinese junk bonds, which is dominated by developers, also remains far from healthy. The yield to maturity of an ICE BofA index of Chinese high-yield corporate bonds peaked at nearly 28% earlier this month, and stood at about 22.4% as of Thursday.

China Property Risks to Economy Can Be Contained, IMF Says …but needs to step-up fiscal support for its slowing economy.

Downside risks to the IMF’s forecast of 8% growth in China this year and 5.6% in 2022 “are accumulating” due to factors such as “pandemic uncertainty” and weak consumption, the IMF said in a press release following an annual survey of the world’s second-largest economy. (…)

China’s Economy Is in for Much Slower Growth, Beige Book’s Miller Says

China’s economy is slowing more than people think and the outlook is for weaker growth going forward as the government is unlikely to step in with significant stimulus, according to Leland Miller, chief executive officer of China Beige Book.

“The third quarter was particularly brutal” for China’s economy, Miller said Friday on Bloomberg Television in Singapore. In addition, “we’re going to be looking at much lower growth going forward and it’s going to be because the Party is OK with that.” (…)

“There was no big stimulus or broad policy easing,” he said, because China’s leaders have decided “to slow things down, to work toward slower, healthier growth of the Chinese economy, rather than deal with the consequences of keeping pushing this model to its limits.”

The government will be able to contain the problems from China Evergrande Group within the property sector, Miller argued, because they have control over the banks and other counterparties, and so there won’t be unconstrained contagion. However, the problem for the economy is that there’s no replacement for the property sector as a driver of growth. 

“Structurally, nothing is being done to empower consumers,” either through a much stronger currency or via transferring state assets to households, Miller said. “Investment is falling but consumption is not being empowered.” (…)

China Faces Many Challenges in Keeping Economy Stable, Li Says

Authorities should strive to keep the economy operating within a reasonable range and ensure the overall employment situation is stable, Li said at a seminar with scholars and businessmen Friday, according to a report in state media Xinhua. He said “cross-cyclical” adjustments were needed to support growth. (…)

Li said Friday the economy was recovering steadily and this year’s main goals can be achieved.

More effort was needed to support businesses and keep jobs, he said, vowing to study new ways of supporting manufacturing enterprises and small firms, such as tax and fee cuts. (…)

Various policies supporting coal power companies must be fully implemented to ensure stable power supply, he said. (…)

• Alibaba slashes sales outlook as competition bites, demand slows

Alibaba now expects revenue for the year ending in March to rise between 20% and 23%, the slowest pace since its 2014 stock market debut and down from a May forecast of 29.5% growth. The company also undershot expectations for earnings per share in the second quarter. (…)

“These economic headwinds, coupled by intensifying market competition also affected our core commerce business in China,” Alibaba CEO Daniel Zhang said on an earnings call, adding that demand for apparel and general merchandise had been particularly affected. (…)

Alibaba said it had recorded single-digit growth for physical goods gross merchandise value, a key online retailing metric for the total value of merchandise sold through a marketplace, though it did not provide more details or a comparison with previous quarters. (…)

Axios today:

Amazon’s competitors are multiplying. Traditional retailers are trying to replicate the e-commerce giant’s playbook. Macy’s is set to launch a third-party sellers marketplace next year, the company said today, becoming the latest legacy retailer to enter an arena dominated by Amazon.

Hudson’s Bay opened a third-party marketplace earlier this year, while Walmart expanded its version to international sellers around the same time.

The pandemic helped brick-and-mortar stores get even better at selling online — handing consumers more buying options and putting pressure on Amazon to stay competitive.

Amazon’s year-over-year sales growth during the third quarter, at 15%, was its slowest in almost seven years. Meanwhile, Macy’s digital sales were up 19% in Q3.

A third-party marketplace could be beneficial to Macy’s existing e-commerce business because the platform could generate commissions like Amazon does, without needing Macy’s to hold any additional inventory, David Swartz, a consumer equity research analyst at Morningstar, tells Axios.

1 for the road: Yard delivery via drone

Self-driven drones are now delivering Walmart packages to customers’ yards in Pea Ridge, Ark. — just outside Bentonville, Worth Sparkman writes for Axios Northwest Arkansas. Officials told Axios that packages consistently land in an area the size of two parking spots.

A pilot (!) project officially started this week behind a Neighborhood Market about 20 minutes from the retailer’s HQ. Walmart and drone-maker Zipline will then decide whether to launch the service in other markets.
The Zipline method, which can drop a 4-pound package within 30 minutes of being ordered, helps fill the “last mile” of the supply chain.

Customers in the service area schedule an online order. A Walmart employee packs the product and hands it off to a Zipline staffer. Zipline preps and launches the aircraft, which drops the package with a biodegradable parachute.
The drone circles a target to determine wind direction, then approaches the drop zone.

Under a waiver from normal FAA rules, Zipline drones have no cameras or remote human pilot. Walmart is working with the FAA to expand delivery to more areas of Northwest Arkansas.