In the latest report from Cowen & Co.’s Bill Bird, the analyst compiled reports from across the firm to offer a higher-level perspective on what’s going on in the world of business and the consumer. While there are improvements, the overall picture is pretty dim.
In the report, titled “Connecting the Dots: Update on Sentiment, Supply Chain, Input Costs, and the Consumer,” Bird said the company’s proprietary surveys and data “show a step down in economic confidence and hints of inflation moderation.”
“The business growth outlook declined sequentially in our [second quarter] Cowen surveys for carriers and rail shippers,” Bird said, adding that 87 percent of rail shippers and 52 percent of carriers “believe we are headed into a recession.” Bird’s report noted that 47 percent of carriers expect the timing of a recession to be in the current third quarter.
In the report, Bird said elevated supply chain costs are continuing “but appear to be easing somewhat, as spot rates step down on both ocean and truck. We have observed gradual improvements in semis supply constraints helped by the easing of China lockdown shocks.”
Regarding consumers, Bird said with inflationary pressures remaining high, 50 percent of respondents in Cowen’s Consumer Tracker survey are cutting or expect to cut spending given higher prices, “up versus 47 percent the prior month.” The report noted that 78 percent of households with less than $50,000 in annual income are cutting their spending. “Particularly striking is that 52 percent of households with more than $100,000 in annual income are now planning to cut spending, up from 46 percent in May and 39 percent in April,” Bird said.
The Cowen report also found that the “macro negatives” presented in its June inflation report showed signs of broadening. This includes an “acute energy crisis” in Europe. In his report, Bird wondered, “How forceful will the EU be in implementing its embargo on Russian crude oil? Will Russian oil find its way into markets in other ways (e.g., Saudi Arabia more than doubled Russian fuel oil imports in the second quarter)?”
These are hard questions to answer, but one thing is clear: the energy crisis was well underway even before the Russian invasion of Ukraine as the pandemic triggered supply chain disruptions around the globe.
Other notable data points in Cowen’s reports are double-digit food inflation, rising state-level jobless claims and more signs of layoffs in the tech and biotech sectors, as well as slower hiring. One of the more concerning trends Bird found was that the erosion of consumer purchasing power is accelerating. Bird noted that the gap between declining weekly earnings and higher prices continues to widen.
But there is some good news. Cowen data indicate there are signs of inflation relief with oil prices dropping and prices at the gas pump falling. Also, supply chain and logistics costs are moving lower, and a strong dollar is making imports cheaper for shoppers.