Black Friday is always a huge event for U.S. retailers but this year it has far-reaching implications for the economy and markets.
Consumers have been remarkably resilient this year, defying tough economic conditions, inflation, and aggressive interest-rate hikes. They’ve essentially propped up the U.S. economy, along with the strong labor market, powering 4.9% GDP growth in the third quarter.
Whether that resilience continues or not will go a long way to answering the question of whether a recession is coming next year or not. After all, consumer spending accounts for about 70% of the economy.
Granted, Black Friday is just one day. But it sets the scene for the important holiday season and will provide a real-time checkup on the health of U.S. household finances.
Signals of a slowdown are starting to mount. Pandemic-era savings—a key reason behind the spending boom—are dwindling and there are signs that consumers are becoming more price-conscious. If shoppers are indeed more hungry for bargains, retailers’ margins will be squeezed and discounters will fare better.
Retail earnings in the third quarter pointed toward a challenging holiday period, with caution being the operative word. That being said, U.S. consumers have consistently surprised everyone with their strength—who’s to say that won’t happen again?
Either way, today’s spending spectacle and that of its online sibling Cyber Monday, will be as good a recession indicator as any.
—Callum Keown
***
Retailers Expect Millions of Holiday Shoppers This Weekend
Retail industry watchers believe the coming weeks will be a nail-biter as stores compete for shoppers’ attention using deals and other promotions. The National Retail Federation estimates 182 million people are planning to shop in-store and online between Thanksgiving and Cyber Monday, the highest projection since at least 2017.
- Of those surveyed, 130.7 million people plan to shop today’s Black Friday sales, while 71.1 million plan to shop on Cyber Monday. Nearly half of shoppers have already bought holiday gifts, 18% have bought decorations, and 17% have bought gifts for themselves.
-
Electronics retailer
Best Buy
expects fourth-quarter same-store sales to fall between 3% and 7%, citing uneven consumer demand, though discounts will be bigger than last year. Discounter
Burlington Stores
said shoppers are trading down to less expensive options in a hunt for value. -
Clothing retailers from
Gap
to
Nordstrom
said smaller inventories have required fewer markdowns to stimulate buying, helping to improve their margins and possibly signaling the end of the deep discounts on apparel consumers saw last year. - Return policies are stricter this year. About 49% of stores have started to charge fees to ship or restock returns, and 40% have shortened the return window, MarketWatch reported, citing goTRG data. About 24% offer store credit instead of refunds on returned items.
What’s Next:
Amazon’s
return policy for purchases between Nov. 1 and Dec. 31, was extended through Jan. 31, 2024, it said on its website. The extension excludes
Apple
products, which can be returned through Jan. 15, 2024.
—Janet H. Cho and Sabrina Escobar
***
GM’s Cruise Plans Careful Relaunch of Driverless Operations
General Motors
’ robotaxi unit Cruise will eventually restart its driverless operations in just one city initially, as it looks to rebuild public trust amid safety concerns. It has also paused plans for its Origin vehicle, set to be produced by GM.
- “Once we have taken steps to improve our safety culture and rebuild trust, our strategy is to relaunch in one city and prove our performance there, before expanding,” a Cruise spokesperson said in an emailed statement to Barron’s Thursday.
- The company halted its driverless operations nationwide last month after a crash in early October led to the suspension of its license in California. A hit-and-run victim ended up under a Cruise taxi and was dragged several feet before the vehicle stopped, Barron’s previously reported.
- The company last week broadened the suspension of its operations to include all supervised and manual operations, and expanded an independent safety review.
- GM, which owns about 80% of Cruise, has previously projected that the robotaxi unit could generate $50 billion in annual sales by 2030. That forecast hasn’t been updated in recent months.
What’s Next: It’s a long and slow road back for Cruise, whose CEO and co-founder Kyle Vogt resigned Sunday. It is a key part of GM’s future strategy and the auto maker will want to see Cruise get back on the right track, even if it takes time.
—Callum Keown
***
Peak Thanksgiving Travel Days Still Ahead for Airports, Highways
Now that Thanksgiving is over, the annual return-to-home ritual is on, with the potential for travel congestion, longer lines at airports, and more traffic on roads and highways. While airports are expected to be the busiest on Sunday, those who drove to their holiday destinations are seeing the lowest gasoline prices since 2020.
- The TSA estimated it would screen 30 million passengers at U.S. airports over the 12-day period between Friday Nov. 17 and Tuesday Nov. 28. Through the first five days of that period, it screened 12.8 million people at airport checkpoints.
- AAA forecast that 49.1 million people would drive at least 50 miles between Wednesday and Sunday. GasBuddy reported that retail gasoline prices dropped to an average $3.248 a gallon on Wednesday afternoon, down from $3.599 last year and the lowest in three years.
-
Transportation Secretary Pete Buttigieg said the government has hired more air traffic controllers, opened new East Coast air routes, and given airports money for snowplows and de-icing equipment.
Southwest Airlines
bought more winter equipment to handle sub-freezing temperatures. - The Transportation Department said more than 131,000 flights are scheduled from today through Sunday. The Transportation Security Administration expects to surpass its June 30 record of screening 2.9 million passengers on Sunday, and anticipates screening 30 million passengers in the 12 days through Tuesday.
What’s Next:
American Airlines
is expecting 7.8 million passengers on more than 70,000 flights through Tuesday, including 6,100 flights on Sunday.
Delta Air Lines
expects Sunday and Saturday to be peak travel days, averaging 515,000 to 530,000 passengers a day.
—Janet H. Cho
***
Delayed OPEC+ Meeting Raises Questions About Production Outlook
Oil prices have tumbled after the Organization of the Petroleum Exporting Countries and allies including Russia delayed a meeting that was supposed to start on Sunday. The members have disagreements about future production cuts, sending U.S. benchmark WTI briefly below $75 a barrel.
- WTI is down some 20% from the highs it hit in September. OPEC, which will now start the meeting four days later, has had delays before but not for that long, Rystad Energy told Barron’s. OPEC’s website didn’t give a reason for the delay, but did say that the meeting would be held online.
- Helima Croft, RBC Capital Markets’ head of commodity strategy, said the delay was to resolve outstanding production level issues with Nigeria and Angola. Croft said she expects OPEC unity will be preserved and that the current collective and unilateral cuts will be extended.
- OPEC and its allies have reduced production by about 5 million barrels a day in total. The bloc has cut production by about two million barrels a day, and some members have also cut production by an additional 1.7 million barrels, and Saudi Arabia and Russia have cut 1.3 million barrels a day combined on top of that.
- Analysts have been betting that OPEC would respond to recent price weakness by extending the current cuts, or possibly even pushing for more cuts. Croft said Wednesday deeper reductions remain an option, but she doesn’t think Saudi Arabia would want to bear the burden alone.
What’s Next: The big question now is whether oil prices keep falling, which would put more pressure on OPEC to take action. Natasha Kaneva,
JPMorgan’s
head of global commodities strategy, said Saudi Arabia and Russia are likely to extend their cuts through the first quarter of 2024. But if they instead decide to raise production, a dip in oil prices could convince U.S. drillers to cut production.
—Liz Moyer and Avi Salzman
***
Do you remember this week’s news? Take our quiz below to test your knowledge. Tell us how you did in an email to [email protected].
1. OpenAI CEO Sam Altman rode quite a roller coaster this week, after his abrupt ouster one week ago and then his return to the company after days of negotiation. Satya Nadella, the CEO of
Microsoft,
which has a substantial stake in OpenAI, said the turmoil that rocked the AI developer showed which of the following?
a. OpenAI needs governance changes
b. It doesn’t matter where Altman worked, because he would still be working with Microsoft
c. There isn’t evidence of long-term damage at OpenAI
d. All of the above
2.
Nvidia,
the leading maker of chips that power AI applications, is flying high on demand for the product. It raised its current quarter revenue forecast to above expectations, as record October-quarter revenue rose nearly threefold to which of the following?
a. $18.1 billion
b. $19.1 billion
c. $20.1 billion
d. $21.1 billion
3. Law enforcement officials announced that Binance and its founder Changpeng Zhao pleaded guilty to anti-money-laundering violations, and Zhao has stepped down from the company. Which other cryptocurrency company was the subject of a regulatory action this week?
a. Bittrex
b. Kraken
c. Bitfinex
d. Uphold
4. Senate Judiciary Committee leaders sent subpoenas to three social media companies to compel their CEOs to testify at a December hearing about child safety on such platforms. Which of the following companies were sent subpoenas?
a. Discord
b. X
c. Snap
d. All of the above
5. A group has nominated three directors for election to the board of coffee chain
Starbucks
at next year’s annual shareholder meeting. What is the name of the group that filed the nominations with the Securities and Exchange Commission?
a. Trian Fund Management
b. Starboard Value
c. Strategic Organizing Center
d.
Icahn Enterprises
Answers: 1(d); 2(a); 3(b); 4(d); 5(c)
—Barron’s Staff
***
—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner
Read the full article here
