From various recent earnings calls (via The Transcript):
- “The U.S. consumer remains resilient in the aggregate. Consumers are spending more than a year ago, which includes spending more on gas, but they haven’t slowed spending on everything else. Gas represented 6% of our total debit card spend and 4% of our total credit card spend before the rise in oil prices. They now represent 7% and 5% of debit and credit card spend. Note that these numbers are higher for low-income households.” – Wells Fargo CEO Charles Scharf
- “The U.S. economy remained resilient in the quarter, with consumers still earning and spending and businesses still healthy. Several tailwinds are supporting this resiliency, including increased fiscal stimulus, the benefits of deregulation, AI-driven capital investment and the Fed’s asset purchases.” – JPMorgan Chase CEO Jamie Dimon
- “But right now, in the end, the story remains the same, which is resilient consumer that’s doing fine despite higher gas prices.” – JPMorgan Chase CFO Jeremy Barnum
- “Consumer spending has slowed but continues to grow in aggregate.” – M&T Bank Corporation CFO Daryl Bible
- “Consumer spend, core loan demand, and credit delinquency trends all indicate relative stability.” – US Bancorp CEO Gunjan Kedia
- “(…) not only the US but globally, and we’re seeing the consumer quite resilient, very resilient..We haven’t seen an impact on demand since the war started.“ – PepsiCo CEO Ramon Laguarta
- “American consumers remained resilient.” – Citigroup CEO Jane Fraser
- “The U.S. consumer continues to spend through all these different platforms here at Bank of America. (…) For 2025, you can see that it was up 5% from 2024. And that 5% growth has been consistent in the first quarter of ‘26 compared to the first quarter of ‘25. I’m giving what we see today in the spending, even in early April here.” – Bank of America CEO Brian Moynihan
- “So when you look through spending patterns, growth in savings, activity levels, loan growth, like everything we see day-to-day in our business is almost at complete odds with the surveys you see on confidence.” – PNC Financial Services CEO William Demchak
With delayed stats, anecdotal evidence helps fill the gaps. Bank executives were all reassuring on the consumer and the economy last week.
I was particularly interested to read BofA’s Moynihan saying that spending on the bank cards was up 5%+ YoY in Q1 and in early April. That’s a nominal, not real, 5% YoY growth rate
That jibes with the official spending data through February.
NOMINAL DISPOSABLE INCOME AND SPENDING GROWTH
But while spending was resilient, income growth kept decelerating, reaching 3.9% YoY in February.
Since 1980, the correlation between nominal disposable income and expenditures is 99.8% and it has barely changed since the pandemic.
The same is true in real terms …
REAL DISPOSABLE INCOME AND SPENDING GROWTH
… although the 1.1% YoY February advance in real disposable income is worrisome since it very rarely happened in the 60 years of the data’s history (through 2019):
The income components have been slowing in recent months. Employment growth has nearly stalled while wage growth has slowed below 4.0%, perhaps below 3.5%.
Meanwhile, inflation, which was already perking up before the US-Israel attacked Iran, will no doubt get closer to 3.5% in coming months
“…the impact of higher oil prices will likely take some time to materialize…We have seen historically that it often takes consumers several months to reduce their spend levels on other categories to adjust for higher oil prices.” – Wells Fargo CEO Charles Scharf
But it’s not just oil prices:
“The good old days are gone,” said Christopher Tang, a professor at the UCLA Anderson School of Management who studies global supply chain management. “Right now we see the gasoline prices going up, but that is only part of the story. Everything will be more expensive.” (…)
Oil is not only important to gasoline and jet fuel but also a critical part of the chemical production process for products such as pharmaceuticals and fertilizers. That affects the cost of necessary supplies including prescription drugs and groceries.
Along with oil prices, diesel and fertilizer prices are also rising, which are critical to farming. That makes both the cost of growing crops and raising livestock more expensive, said Christopher Wolf, a professor of agricultural economics at Cornell University. (…)
Last week, the Independent Grocers Alliance said in a statement that a 10-15% rise in fuel prices could in turn raise food prices by 2-4%. While the alliance acknowledged the impact of rising logistics costs on food prices in the short term, the brunt of the effects are anticipated by mid-summer. (…) (The Guardian)
Fertilizer Crunch Looms (Forbes)
In the first week of the war, the price of urea — the nitrogen-rich compound that is the foundation of most crop fertilizers — jumped 30% at the import hub of New Orleans, according to the Fertilizer Institute. By mid-March, Fortune was reporting a 35% spike from pre-war levels. Individual spot prices have reportedly reached $850 a ton.
One major problem is that according to Agriculture Secretary Brooke Rollins roughly 25% of farmers had not purchased fertilizer for the planting season when the war began – now they face a 30-35% price increase. (…)
When the Strait of Hormuz closes, the world’s fertilizer supply chain doesn’t just get more expensive. It gets structurally disrupted.
I ran the math on what this triple shock — fuel, packaging and fertilizer — actually costs the consumer, starting with that bag of lettuce.
- Transportation increase per bag (shelf price): +$0.09
- Packaging resin increase per bag (shelf price): +$0.02
- Total Iran war increase per bag: ~$0.11
- Bags of bagged lettuce/salad sold annually in the U.S.: ~1.7 billion
- Total added annual cost to U.S. consumers (lettuce only): ~$187 million
Eleven cents. It doesn’t sound like much. But lettuce is one item. There are roughly 40,000 SKUs in the average U.S. supermarket. Apply the same fuel and packaging math across every perishable item in a shopping cart — fresh vegetables, dairy, meat, deli, bread — and the Iran war adds an estimated $85 to $120 to the average American household’s grocery bill just on perishables. And that is if the war ends relatively quickly. If it goes on for six months or more, those numbers will grow substantially.
And that figure doesn’t yet include the fertilizer shock. That one hasn’t shown up at the grocery store yet. It’s still in the ground. (…)
The crop that concerns me, and the food industry, the most is corn. Corn consumes 78% of all nitrogen fertilizer applied to U.S. crops. Fertilizer represents 33 to 44% of a corn farmer’s total operating costs. Analysts are already projecting that up to 1.5 million acres may shift from corn to soybeans this spring, as farmers find they simply cannot pencil out the economics.
Here is why that matters to every shopper, not just farmers: Corn is the infrastructure of the U.S. food supply. It feeds the beef cattle, the hogs and the chickens. It becomes the corn syrup in thousands of processed food products. It fuels the ethanol that blends with gasoline. When corn gets expensive, or when less of it gets grown, the price shock echoes through every protein counter and center-store aisle in the country. (…)
The Fertilizer Institute’s own chief economist, Veronica Nigh, said consumers will face more cost pass-through from this crisis than anything we have seen before. (…)
Food prices in the United States are already 24% above pre-Covid levels. The American consumer has been absorbing cost after cost for five years. The Iran war is not an isolated event landing on a resilient economy. It is landing on a food system and a consumer base that have very little cushion left.
Speaking of cushion, the personal savings rate was 4.0% in February.
A “little excursion” to Iran! Gosh, the world is so complicated, and it may not be as resilient as many think.
BTW:
The US-Israel war on Iran is creating the worst energy crisis ever faced by the world, the head of the International Energy Agency (IEA), which advises 32 member countries on energy supply and security, said.
“This is indeed the biggest crisis in history,” Fatih Birol told France Inter radio in an interview broadcast this morning.
“The crisis is already huge, if you combine the effects of the petrol crisis and the gas crisis with Russia.”
Birol has said it will take about two years to recover the energy output lost in the Middle East from the war there. (The Guardian)
BTW #2:
Growing consumer stress is on display in the automobile finance realm. A Monday report from Edmunds finds that 30.9% of trade-ins towards new vehicle purchases carried negative equity (i.e., the remaining loan balance exceeds the value of the car) over the three months through March, the second-highest quarterly reading on record. The average amount owed on those underwater trade-ins reached $7,183, up 42% over the past five years.
Alongside elevated new auto prices – average transactions reached nearly $50,000 in February according to Kelley Blue Book, up from sub-$40,000 pre-pandemic – extended borrowing periods drive that dynamic. In the first quarter, 90.2% of negative equity trade-ins carried loan terms of at least 72 months, with the average length topping 77 months compared with 70.3 months for all new vehicle trade-ins.
Average borrowing costs for those underwater borrowers stood at a 7.9% annual percentage rate, 100 basis points above the broader baseline, while the average age of a negative equity trade-in vehicle reached a record 4.3 years. “Consumers are holding on longer but still can’t outrun their debt,” Edmunds head of insights Jessica Caldwell writes.
Indeed, just below 7% of all subprime auto loans across the U.S. were at least 60 days delinquent over the first two months of the year according to Fitch Ratings, the highest levels on record dating to the early 1990s (that metric topped out at just above 5% in early 2009).
Over the same period, the 60-day delinquency rate among prime borrowers reached 0.425%, a nine-year high and double that seen in summer 2022. Risk premiums, meanwhile, on triple-B-rated auto loans packaged into asset backed securities widened to 145 basis points over Treasurys, analysts at JPMorgan found late last week, from 120 basis points at the end of February. (ADG)
Canada’s inflation rate hits 2.4% in March as war fuels highest monthly gas-price increase on record
The annual inflation rate hit 2.4 per cent last month, accelerating from 1.8 per cent in February, Statistics Canada reported Monday in its Consumer Price Index report.
Prices at the pump surged by 21.2 per cent in March from February, the largest monthly increase recorded by Statscan. Excluding gas, the CPI rose by an annual 2.2 per cent in March, compared with 2.4 per cent in February. (…)
Food costs rose 4.4 per cent year-over-year in March, up slightly from February’s rate increase. The price of fresh vegetables saw the largest increase since August, 2023, rising 7.8 per cent from a year earlier.
Economists expect April’s inflation rate to rise again, to around 3 per cent. (…)
The central bank’s quarterly business and consumer surveys published Monday showed that near-term inflation expectations have risen in response to the Middle East conflict. However, longer-term inflation expectations – the key concern for the central bank – remain relatively subdued.
The business survey took place before the outbreak of the war. Follow-up calls by the central bank found that businesses in “upstream” segments of the value chain – agriculture, oil and gas, manufacturing and transportation – have already experienced cost increases. Some companies further down supply chains expect input costs to rise in the coming months.
At the same time, businesses reported constraints on their ability to pass rising input costs along to customers. A weak demand environment, constrained consumer budgets and elevated competition all make it difficult to raise prices.
A humanoid robot sprints past the human half-marathon world record
A humanoid robot that won a half-marathon race for robots in Beijing on Sunday ran faster than the human world record in a show of China’s technological leaps.
The winner from Honor, a Chinese smartphone maker, completed the 21-kilometer (13-mile) race in 50 minutes and 26 seconds, according to a WeChat post by the Beijing Economic-Technological Development Area, also known as Beijing E-Town, where the race kicked off.
That was faster than the human world record holder, Uganda’s Jacob Kiplimo, who finished the same distance in about 57 minutes in March at the Lisbon road race.
The performance by the robot marked a significant step forward from last year’s inaugural race, during which the winning robot finished in 2 hours, 40 minutes and 42 seconds.
But the competition, which was held alongside a race for humans, wasn’t without hiccups — one robot fell flat at the start line, another bumped into a barrier.
Du Xiaodi, Honor’s test development engineer, said its robot was equipped with what he called a powerful liquid-cooling system, which was largely developed in-house.
“Looking ahead, some of these technologies might be transferred to other areas. For example, structural reliability and liquid-cooling technology could be applied in future industrial scenarios,” he said.
Beijing E-Town said about 40% of the robots navigated the course autonomously, while the others were remotely controlled. (…)
State broadcaster CCTV reported that the runners-up, which were also from Honor and used autonomous navigation, finished the race in about 51 minutes and 53 minutes respectively. A robot served as a traffic officer to direct the participants with its arm gestures and voice, CCTV added. (…)
London-based technology research and advisory group Omdia recently ranked three Chinese companies — AGIBOT, Unitree Robotics and UBTech Robotics Corp. — as the only first-tier vendors in its global assessment for shipment numbers for general-purpose embodied intelligent robots.
They all shipped more than 1,000 units of the robots last year, with the first two companies shipping more than 5,000 units, the report said.
