Anyone motivated enough to read a FreightWaves newsletter the day before Thanksgiving is probably stuck at a very crowded airport, and would rather read about something more lighthearted than the situation in the Middle East, so I’ll start by saying safe travels, Happy Thanksgiving and go Lions! By now, you should know that the Detroit Lions play every Thanksgiving and are currently in first place in the NFC North. Maybe the last shall become first after all. If you have ever felt the urge to pull for an underdog, why not a team that has never been to the Super Bowl? Never mind the same is true of the Browns, Jaguars and Texans. The Silver and Blue have their best record since the Kennedy administration which really should be a much bigger story than who may be attending a Chiefs game, a team that wins so much it puts viewers to sleep. I know some of the Lions’ wins barely materialized, after home crowd booing, and at the expense of subpar teams like the Bears, but a win is a win. Last week when traveling, I actually saw two people decked out in Lions gear. That is two more than I’ve ever seen at airports before and shows there are, in fact, other Lions fans out there. I bet there are dozens of us, maybe even one or two The Stockout subscribers. And anyone who accuses me of being a bandwagon jumper should be prepared to receive a picture of my Barry Sanders jersey and/or my Starter jacket as evidence of my longtime misery, I mean fandom.
Big-box retailers’ concerning October
Target shares (blue) have greatly underperformed Walmart (black), but that gap partially closed in recent days following their respective third-quarter earnings reports. (Chart: Barchart.com Inc.)
There has been plenty of mixed data on the health of the consumer, suggesting that consumers are on either solid or poor footing, depending on which track a particular set of consumers are on. For example, overall spending levels are still strong, but auto delinquencies are up and credit card balances are hitting record highs. Last week, Walmart and Target reported their fiscal third-quarter earnings, and there were several cautious comments regarding consumer spending. Walmart experienced unexpected sales weakness in the back half of October, and management said it had become more cautious on consumer spending than it had been 90 days earlier. However, November sales have appeared more normal to the largest retailer, and it believes unusual weather patterns may have played a role in the tepid October. Apparently, the only thing that stops Americans from buying is cold or inclement weather.
Meanwhile, in Target’s earnings last week, it also highlighted continued sales weakness, although I have a hard time separating what Target’s results say about the state of the consumer versus the heavy overlap between Target’s and Amazon’s customer base. Target highlighted overall same-store sales are still tracking down mid-single digits. In the discretionary categories, it has now seen seven consecutive quarters of declines in both units and sales. Comparable sales in the discretionary categories have deteriorated from year-over-year declines in the high-single digits to the low-double digits. Overall, consumer caution may be related to a loosening in the labor markets — last week Walmart said it was overstaffed and Home Depot said it is no longer having issues with attrition.
For more detail, see Monday’s The Stockout show here.
Big-box retailers report disinflation in some categories, deflation in others
Aside from cautionary comments on consumer spending, and evidence of loosening labor markets, highlighted in the section above, the other major takeaways from retail earnings last week were related to more widespread disinflation or deflation, depending on category.
Walmart has seen the price level of the goods it is buying from suppliers come down broadly, with particular deflation in fresh foods as well as the broad, and typically discretionary, general merchandise category, which is showing mid-single-digit deflation. The prices of fresh and unprocessed foods are largely a pass-through of underlying commodities. Meanwhile, price levels for dry grocery and consumable items, which includes packaged food and most CPG items, have been slower to deflate. CPG companies attribute that to rising costs outside of underlying ingredients, such as for packaging and manufacturing. Walmart’s comments last week suggest that CPG price levels can only defy gravity for so long — the largest retailer expects prices in the dry and consumable categories to deflate in the coming weeks and months. That comment suggests that the retailer has already adjusted prices with many CPG suppliers for upcoming contractual periods.
Rail intermodal is a growth area again
The latest domestic intermodal volume data contained in SONAR, illustrated below via the ORAILDOML.USA ticker which limits the data to loaded 53-foot containers, suggests that not only was there a mini-peak in mid-to-late October, but volume also continues to track nicely above 2020 and 2021 levels in November.
Specifically, quarter-to-date loaded domestic volume is up 4.5%, year over year, including November volume that is up a similar 4.7% y/y. I attribute that to several factors, including:
- A pickup in overall freight volume, which can also be seen in other modes, as inventories have largely been right-sized.
- Improvements in rail service levels relative to the past two years.
- Aggressive pricing by the domestic intermodal carriers, particularly the asset-based ones, to keep their owned containers utilized.
- Domestic intermodal carriers encouraging shippers that have not used intermodal in the past to do so.
Barring a meltdown in either freight demand or rail service (possible this time of year if there were to be, for instance, a polar vortex in Chicago), I expect domestic intermodal volume to continue to show y/y growth through at least the first half of next year.
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