The Great E-Commerce Reset

Dec 22, 2022 | Bubble Monitor, No Bull Economics

Bubble Monitor Chart

How should the market interpret FedEx’s recent report of declining volumes? While scary at first glance, it reveals a rebalancing mix of online and in-person retail sales. Overall retail sales are still outperforming pre-covid levels, revealing the good news that Americans are getting back to normal.

Key Points:

While FedEx’s declining fiscal 1Q demand trends softened further during 2Q, volume declines are expected to moderate during fiscal 2H23 (particularly in fiscal 4Q23). Despite a total volume decline of -9% during the quarter, a +6.9% general rate increase implemented in September & cost cutting measures (total cost cuts of $3.7B through fiscal 2023 are targeted with plans to idle 11 aircraft by fiscal year-end) helped drive growth in operating income & margin. Low double-digit volume declines in FedEx Express (U.S. domestic package business) reflect an “e-commerce reset” now that consumers are returning to in-person shopping. Pre-covid e-commerce represented 16% of retail sales mix before peaking at 22%. The mix is currently in the 18% to 19% range.

Monthly trends for FedEx

In addition to Fedex’s report of volume declines, management reported that the industrial economy is slowing around the world with Europe the hardest hit. Also, management reported that it has not seen any fundamental volume changes in China over the last few weeks despite relaxing covid lockdowns. Taken together, FedEx’s comments gave the market a good scare.

FedEx vs. S&P

Notably, FedEx’s Great E-Commerce Reset does not necessarily imply that retail sales growth has fallen-off the cliff. In fact, the most recent government data for advanced retail sales (November 2022) increased +5.4% y/y which remains stronger than pre-covid 2019 levels and much higher than China’s -5.9% y/y decline in retail sales during November.

Retail sales chart
Restaurant Research

Email Sign-up

15 Second Posts

Powell Faults an Overheated Labor Market for the Need to Hike Rates Again

Despite growing evidence of systematic bank risks associated with the Fed’s aggressive rate hikes over the last year, Powell hikes another 25 bps anyhow, citing labor pressure as the culprit. However, in the real world, labor conditions are already improving.

Fixed-Income Issuance Says a Lot About Economy

Total U.S. fixed income (FI) issuance declined -34% y/y to $8.8 trillion during 2022 as interest rates ramped up.

Bank Deposits Growing Much Faster than Business Loan Demand

Banks have been parking excess deposits in various forms of government debt that are subject to interest rate risk & in some cases, risky crypto bets. This is causing systematic risk.

Nerdwallet Survey Shows an Indebted & Very Stressed Consumer

Consumers are combating the higher price of living & higher interest rates by driving less, buying store brands & taking on more debt.

The United States of America is Worth Saving

Americans need to be reminded about our heritage as the single most productive nation as measured by GDP/person with a unique capability to bless the entire world if we can simply get back to business.

Should Private Banks Go Extinct?

Since the 2008 Great Recession, 134 banks with assets of $1.25 Trillion have been closed by regulators. At the same time, the Fed’s ballooning balance sheet now amounts to nearly 50% of total domestic bank deposits.

What Happened to Silicon Valley Bank?

Don’t assume that SVB’s difficulties are symbolic of the entire banking industry.

What Does the End of the Petrodollar Mean?

The Saudi minister of finance announced that the Kingdom was ending the petrodollar. “There are no issues with discussing how we settle our trade arrangements, whether it is in the US dollar, whether it is the euro, whether it is the Saudi riyal”. Yikes!

Senator Kennedy Schools Country on Economics 101

We have a choice of how to tame inflation, cut government spending, or throw people out of work.

Inflation is Marginalizing Purchasing Power from the Lower-Income Demo

As households with annual incomes >$70k drive 62% of total food-away-from-home sales, it is more important than ever to focus on this demo especially as spending from the lower-income demo slows.

Digital Marketing Opportunities
Restaurant Research

A Restaurant Research LLC Company