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- Consumers: Are they finally cracking?
Summary
Market & Economy. The S&P 500 experienced a correction in April (that we’ve all forgotten about), all major indices fell, bond yields rose, GDP growth slowed, inflation remains high, the labor market is tight but cooling, and the Fed is expected to maintain higher interest rates longer due to persistent inflation.
Insights: Is the consumer finally cracking? Consumer confidence: Holding on for dear life, fueled by the hope of a paycheck. Despite economic challenges like inflation and decreased savings, a strong labor market and stable spending on services are supporting what is left of consumer confidence. Concerns about future economic conditions persist, leading to mixed spending patterns and impacting companies in various sectors.
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Disruption. AI-powered video monitoring is poised to transform industries by automating previously human-dependent tasks, increasing efficiency and accuracy while unlocking new possibilities for data analysis and real-time response.
Markets & Economy
On April 3rd, the S&P 500 experienced its first correction in 105 trading days, ending a period of historically low downside volatility. Bonds and equities were hit hard by repricing to "later and less" rate hikes.
All major indices fell between 4% and 6% during the month of April. Intel’s had its worst month in 21 years after shares fell by 31%.
As of May 29th, the S&P 500 is up +4.6%.
Bond yields climbed during the last week of April as signs of persistent inflation eroded expectations for how deeply the Federal Reserve would be able to cut interest rates without further fueling consumer prices. The yield on the benchmark 10-year note is up 80 basis points this year and last stood at 4.70%, a five-month high.
During Q1, real GDP grew at a 1.6% annualized rate, a significantly slower pace than expected and lowest since Q2 2022. Net exports and inventories both contributed to slower growth. Despite declining federal spending, state and local governments increased spending modestly at a 1.2% annualized rate.
The latest economic indicators also reveal a persistent challenge in reaching the Federal Reserve’s 2.0% inflation target, with various measures of price pressures continuing to rise.
A tight labor market and strong wage growth are putting a dent in the path toward slower inflation as job openings exceed the number of unemployed, especially in healthcare and professional services.
The unemployment rate rounded up to 3.9%, marking the highest level since January 2022, although still low by historical norms. A better labor market balance led to further moderation in wage growth.
Job openings have come down to 8.5M in March, down by 1.1 million over the year, according to the BLS.
Takeaway: The Fed is constrained by the persistence of inflation, but the good news is that the labor market, which is causing inflationary pressures, appears to be cooling. The bad news is that historically, an accelerating rise in unemployment is a clear indicator of a late-stage economic cycle.
Insights - Is the consumer finally cracking?
Consumer spending is the backbone of the U.S. economy, representing 70% of the gross domestic product (GDP). In the current economic context, spending patterns are somewhat mixed. While factors like lingering inflation, dwindling savings and interest rates put pressure on household budgets, a strong dollar and labor market provides some stability for spending.
Economic News: Consumer Confidence
Increase in Consumer Confidence: The Consumer Confidence Index rose to 102.0 in May from 97.5 in April, driven primarily by an improving labor market.
Improvements in Present Conditions: The Present Situation Index increased to 143.1, reflecting a more favorable assessment of current business and labor market conditions. Fewer consumers reported difficulties in finding jobs.
Persistent Anxieties About the Future: Despite improvements, the Expectations Index remains below the 80-point threshold that often signals potential recession, indicating continued consumer concerns about future economic conditions.
Critical Role of Employment: The strong labor market is a key factor sustaining consumer confidence amid broader economic uncertainties. This suggests employment stability is crucial for maintaining consumer sentiment in the face of potential downturns
Consumer spending in the United States has undergone significant shifts in recent years. After a period of pandemic related restrictions and excess savings fueled a surge in online and goods-based spending, 2023 saw a normalization with spending redirected towards travel and services.
Now, we are running into the problem that most consumers have spent their pandemic savings. The next step is the sale of liquid investments such as treasuries.
Below are some signs we are seeing of the American consumer:
As a result of persistent inflation, the American consumer is struggling. The personal savings rate declined to 3.2% in October, the lowest rate since October 2022, and well below the average savings rate over the past 30 years (5.8%).
Starbucks, Pizza Hut and KFC are among the chains that reported same-store sales declines this quarter. Starbucks revenue fell 2% over the last year. Since its IPO in 1992, the only periods with a bigger revenue decline than today: 2008-09 and 2020.
For multiple quarters, Home Depot and Lowe's revenue has decreased due to decreases in consumer discretionary spending.
YoY Revenue Growth % for HD and Lowe’s
Companies like Nike, Lululemon, V.F. Corporation, Yeti, Tesla, Etsy, etc. are down year-to-date. Broader economic challenges such as inflation, interest rate hikes, and recession fears have impacted consumer sentiment, spending, and corporate earnings.
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Disruption
Artificial intelligence is rapidly expanding beyond chatbots and image generation, transforming industries with its latest innovations.
Problem: Monitoring Services With Human Operators Can’t Scale
Industries such as retail, transportation, manufacturing, and gambling have long relied on video monitoring for security, safety, and operational optimization. However, these processes have traditionally been constrained by human limitations, requiring significant manpower and often resulting in missed details or delayed responses.
Human operators currently monitor video feeds to identify theft, track customer behavior, detect defects, or analyze player interactions. This approach is time-consuming, prone to errors, and limited in scalability.
Solving With AI Will Drive Efficiency
Artificial intelligence is poised to revolutionize video monitoring by automating these processes. AI-powered algorithms can analyze vast amounts of video data in real-time, identifying patterns, anomalies, and potential threats with greater accuracy and speed than human operators.
It's important to note that AI-powered video monitoring isn't an entirely new concept. Governments and organizations have been utilizing this technology for some time, with applications like facial recognition at airports becoming increasingly common. As reported by The New York Times, Customs and Border Protection has employed facial recognition technology at airports for several years to verify travelers' identities and enhance security measures. However, the latest advancements in AI are pushing the boundaries of what's possible, unlocking new levels of efficiency, accuracy, and scalability that were previously unattainable.
Advances in machine learning, computer vision, and deep learning are driving this transformation. These technologies enable AI systems to recognize objects, track movement, analyze behavior, and even predict future events based on video data.
Some companies working on hard problems in this space:
