Economy

Hope is fleeting for an economic soft landing

Economic conversations have come full circle, as applause for an imminent soft landing have been replaced with increased skepticism. New GDP numbers were released late last week, showing an unfavorable combo of increased inflation and slowing growth, plunging hopes for an incoming interest rate cut.

What does the data say?

The Bureau of Economic Analysis released information on the first quarter of 2024, and it was a doozie:

• GDP increased at a 1.6% annualized rate, way below projections of 2.4% and even further from the 3.4% seen at the end of last year.

• Slow growth typically signals that the Fed may cut interest rates, but, looking at another indicator complicates things…

  • Consumer prices (a reliable indicator of inflation), boomed to a much higher than expected 3.7%.

Does this mean the economy is doing bad?

While the numbers might not be encouraging, the US is still doing good (especially when compared to the rest of the world). Based on projections from the International Monetary Fund, the US should account for 26.3% of global GDP this year and is also outperforming its competitors in other economic categories.

In addition, applications for unemployment benefits are at their lowest point in the last couple months, and consumers are still spending despite an increase in debt across the board.

You might want to relax for awhile

Don’t get possessed by a “false sense of security,” a warning coming straight from JPMorgan CEO Jamie Dimon. Dimon went on to say the chance of a successful soft landing is lower than 50%, and cited geopolitical hurdles along with the $2 trillion fiscal deficit as reasons why he’s concerned about the health of the economy going forward.

KPMG's (a tax advisory service) chief economist said The Fed is stuck in “monetary policy purgatory,” as it weighs if and when it will cut rates. Apparently, all options are open to them, including an appealing rate hike.

Business

Chipotle’s is on fire, despite price hikes

Even with a plethora of “food hacks” to get more meat in your burrito, the fast-casual food chain is doing quite well. Chipotle reported a 5.4% increase in location traffic and higher revenue than expected compared to the same time last year, even while charging its customers more.

People love a burrito

While many have complained over quality imbalances and price hikes from the chain in recent years, it hasn’t stopped Chipotle from thriving. The chain has somehow gotten its sales and traffic to increase despite raising prices six times in the last few years, contrary to its peers in the industry.

They are an outlier: Companies like McDonald’s have seen their customer base turn to alternatives because of price hikes.

• Chipotle made $2.7 billion in revenue last quarter, even more than the $2.68 billion expected by investors.

Go get the butcher. One of the chain’s newest protein options, chicken al pastor, is so popular an executive sent a message to managers telling them and their employees to eat something else for their meals because they’re so short on supply.

The executive retracted the request shortly after, but regardless, it shows how loyal the chain’s fanbase is. The higher-income customers that are willing to pay nearly $15 for an al pastor chicken bowl aren’t in short supply, unlike the chicken itself.

People are cancelling their streaming services now more than ever

A combination of factors have led to Americans ditching streaming services at an unprecedented rate. Between rising prices and lackluster content, an increasing number of Americans are getting rid of their subscriptions to streaming services, according to the NYT.

Transient tendencies

New data from the subscription research firm Antenna says the number of “serial churners,” (customers who jump between streaming services) is growing at a striking rate.

• Almost 30 million subscribers have unsubbed to three or more streaming subscriptions in the last two years.

• Those same customers made up around 40% of all new subscriptions and cancellations last year.

  • However, 33% of them resubscribed to the service they just canceled within six months.

As the trend takes hold of streaming services, they’re struggling to find a way to persevere:

• A proposed joint sports network from Disney, Fox, and Warner Brothers Discovery wants to replicate the bundling strategy that Disney has found good fortune with.

• Peacock had a different strategy… Before hosting the NFL playoffs this year, the platform offered new subscribers a one year subscription for half price.

  • This resulted in a huge spike in subscribers for the platform, although cancellation rates stayed the same.

While other platforms struggle… An outlier to the “serial churners” is Netflix. The streaming service enjoys a much lower cancellation rate than any other service and announced it will stop reporting quarterly subscriber numbers, saying engagement measures its success far better.

Grab Bag

Say goodbye to this staple mall store

Years of declining sales and foot traffic have caused another mall dweller to close. The clothing company Express, the store everyone passed by at the mall, filed for Chapter 11 bankruptcy last week and said it’s closing many of its physical locations.

Closing up shop

If you actually shopped at Express, now is the time to do it: Around 100 of the over 500 Express locations started closing sales last week and at all 10 UpWest stores (one of Express’s subsidiaries). As a possible sale to a group of property investment firms is on the horizon, the company plans to still sell its products online as it has before.

• Express had close to $1.2 billion in debt and $1.3 billion in assets as of March 2 after dealing with multimillion-dollar operating losses in a two year stretch during the pandemic.

• Revenue is also down around 10% from 2019.

What went wrong?

Express’s main seller is officeware and when everyone started working from home during the pandemic, sales really took a hit. GlobalData managing director Neil Saunders said the retailer struggled to adapt to the “casualization” of fashion, while its competitors capitalized on the trend.

• Saunders also claimed its clothes fail to stand out and don’t attract the attention necessary to maintain business.

Express isn’t alone: A few other retailers have already declared bankruptcy (like the fabrics seller Joann) or have weary prospects for the coming years, such as FootLocker, JCPenny, and Kohl’s.

Tesla’s earnings were even worse than predicted

Expectations were not very high toward the end of Q1, but the company still fell short. For the first time since 2020, Tesla’s quarterly revenue plummeted, falling to $21.3 billion, compared with $23.3 billion from the same period a year ago.

Tesla’s profits sunk to a six-year low. The company said earlier this month that it only delivered 386,810 cars in the first quarter, down 8.5% from the same time in 2023.

Earnings aren’t the only thing looking dismal

The company’s stock hit a near 52-week low (it has since rebounded 36% as of writing) and after its market cap lost roughly $350 billion during the quarter, Tesla has some investors pretty worried.

Tesla has also had to deal with some other troubles that certainly haven’t helped its standing:

• The automakers has delivered around 4,000 Cybertrucks, but almost all of them were recalled due to issues with the vehicle’s accelerator pedal.

  • The recall and increased competition from other EV makers caused the company to decrease prices.

• It announced layoffs for more than 10% of its workforce earlier this month.

• Tesla also said it would focus on developing a fully autonomous robotaxi, which will probably need tech advancements and certainly regulatory approval.

  • The new venture could dampen the company’s other focuses and it may also stretch its already strained employees that are dealing with other projects.

However, there may be hope: Despite the earnings mishap, Tesla’s stock did rebound, in part due to the company’s effort to get affordable models out on the market faster. It also announced its energy storage business is on track to outpace its auto business by the end of the year, and is implementing ride-hailing technology into its app, which could help take on companies like Uber and Lyft.

Fast Facts

Alien Anomaly: Voyager 1, which is now 15 billion miles away from Earth, is finally sending readable data to NASA after months of sending indecipherable gibberish. It was definitely aliens.

Valuable Volcano: Mount Erebus, an active volcano in Antartica, spews about 80 grams of gold dust into the air every day. At current prices, that’s around $6,000 worth of gold floating into the wind each day.

Energy Uncovering: Amid soaring demand for lithium, a key component of electric-vehicle batteries, a team of geoscientists discovered lithium deposits in pyrite minerals found in rock samples. The finding, which is "unheard of,” could provide an alternative source to mine the valuable substance.

Bong Ban: Bavaria, a German state, banned smoking weed at Oktoberfest in the fall. Now you know where not to travel.

Health Hack: The massive ransomware attack on Change Healthcare earlier this year affected half of all Americans, releasing their sensitive medical data, according to TechCrunch.