Daily Update: December 1, 2022

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

Holiday Sales Heading for Reset

With holiday shopping in full swing, inflation appears poised to be the Grinch that stole Christmas this year. 

U.S. retailers including Amazon, Walmart and Target have warned of lower sales expectations in the fourth quarter, an important sales period due to the bump that comes from holiday spending. 

This year, “inflation is having a suppressing effect on consumer sentiment as well as consumer activity,” 451 Research analyst Michael Nocerino said during a recent episode of S&P Global Market Intelligence’s “MediaTalk” podcast. Consumers are stuck spending “more on less,” and that is creating a drag on overall sales, Nocerino said. 451 Research is part of S&P Global Market Intelligence. 

U.S. consumers surveyed by 451 Research in October indicated they were concerned about inflation and energy prices, with lower-income households feeling more pressure to reduce their holiday spending. Survey respondents in households making less than $50,000 a year projected a big pullback in their holiday spending, while households making over $100,000 a year expected to spend a bit more than last year. 

The disparity comes as consumers in lower-income households reported they expect to increase nondiscretionary spending this holiday season, namely on groceries, energy and utilities, and housing. 

S&P Global Market Intelligence economists expect overall holiday sales will decline 1.2% year over year, accounting for inflation.  

Excluding inflation, holidays sales are expected to grow 4.5%. That is high by historical standards, but below the growth seen for the past two years, when pandemic-related trends drove unprecedented demand. The projections indicate that consumers are adjusting their spending patterns as a new normal begins to emerge. 

“The pandemic surge in demand for goods is over, and any post-pandemic pent-up demand for services appears to be largely exhausted,” S&P Global Market Intelligence economists wrote in a Nov. 16 report. 

Still, October sales, which capture the earliest holiday shopping trends, proved stronger than expected, with sales by nonstore retailers, including e-commerce and direct sellers, up 11.5% year over year. E-commerce sales continue to outperform pre-pandemic trends, though growth in this category has slowed in 2022. 

The strength of October sales led S&P Global Market Intelligence economists to boost their fourth-quarter gross domestic product forecast for the U.S. They still expect tighter financial conditions to trigger a mild recession in the near term, however. 

Retailers looking to lure shoppers this holiday quarter will likely have to turn to discounts, industry experts said. The downside: The price cuts will weigh on retailers’ bottom lines. 

"Swelling inventories and price discounts will likely negatively impact retailers' fourth-quarter earnings results," Michael Arone, chief investment strategist for State Street Global Advisors, said in a recent interview. 

Today is Thursday, December 1, 2022, and here is today’s essential intelligence.

Written by Christina Mitchell.

Economy

Economic Research: Global Macro Update: Surprising Resilience Unlikely To Last Into 2023

The highly anticipated global recession has yet to arrive. The consensus view is that a sharp slowdown is all but inevitable, given the steepest rise in policy rates in four decades, ongoing geopolitical tensions and energy supply constraints stemming from the Russia-Ukraine conflict. In line with this view, sentiment indicators such as purchasing managers' indices have been signaling a sharp slowdown for months. And an array of consumer and business confidence indicators have given similar signals.

—Read the report from S&P Global Ratings

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Capital Markets

Lending Slows As Banks Brace For Recession

Loan growth at big banks cooled in the third quarter as lenders continued to tighten standards and softening demand signaled that a sharper downturn is ahead. Gross loans increased by a median 0.7% sequentially during the period across the 15 largest publicly traded U.S. banks, down from an exceptional median increase of 4.4% in the second quarter, according to S&P Global Market Intelligence data. The gains in the third quarter did help support surging net interest income and the growth appears to have some momentum left.

—Read the article from S&P Global Market Intelligence

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Global Trade

Feature: Carriers Look To Be On Back Foot For Eastbound Pacific Contract Negotiations As Market Weakens

Next year's containerized freight contracts for the eastbound trans-Pacific lane are likely to settle at steep discounts to 2022 as spot pricing continues to slide on the back of large supply and demand imbalances. Early indications from shippers and carriers alike who are preparing for the spring tendering season point to a firmly bearish sentiment with regards to significant spot market recovery in the short to medium term.

—Read the article from S&P Global Commodity Insights

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Sustainability

Rail, Industry Officials Push US Congress To Act Quickly To Avoid A Rail Strike

Congress should answer U.S. President Joe Biden's call to step in and avert a rail strike before operations start winding down this weekend in preparation for a Dec. 9 strike deadline, officials from the railroad, oil and other industries said Nov. 29. A rail strike would potentially impact power, natural gas and gasoline prices and snarl supply chains across the economy.

—Read the article from S&P Global Commodity Insights

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Energy & Commodities

Fujairah Data: Oil Product Stocks Drop 10.4% Led By Light Distillates Plunge

Oil product stockpiles at the UAE's Port of Fujairah fell 10.4% in the week ended Nov. 28, led by a plunge in light distillates stocks, according to Fujairah Oil Industry Zone data published Nov. 30. Total inventories were at 22.516 million barrels as of Nov. 28, the lowest since Oct. 31, the data provided exclusively to S&P Global Commodities Insights showed. The plunge comes after a 5.4% uptick a week earlier.

—Read the article from S&P Global Commodity Insights

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Technology & Media

Listen: Next In Tech | Episode 93: World Cup Excitement

Every four years, teams from around the globe compete together in the World Cup of soccer (football outside of the states) and beyond the hype and controversy of this year’s matches, there’s a lot of tech. Analyst Richard Berndes joins host Eric Hanselman to talk about the game, media markets and the tech impacts on the game. There’s a new ball with IoT capabilities that further shift decisions from referees to technology and soccer pitches that can pull the turf underground for protection.

—Listen and subscribe to Next in Tech, a podcast from S&P Global Market Intelligence

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