Market 02/15: January retail sales dropped sharply

Retail sales dropped more sharply than expected after the holiday season

Contrary to the upward trend in 7/8 previous months, January retail sales (nominal) declined -0.8% MoM (worse than expected -0.2% MoM).

Sales control group (control group: group included in GDP calculation): -0.4% MoM (< +0.3% expected) strongest decline since March 2023: .

→ Consumers tightening spending amid: high borrowing costs + rising credit card delinquency rates.

Core retail sales also declined -0.5% MoM (vs +0.2% expected), pulling the annual gain to the lowest since COVID.

Up to 9/13 product categories recorded sales declines, led by stores building materials stores, grocery stores and auto dealers.

Retailers non-store retailing (non-store retailing) and food services were the main growth drivers during the year.

Initial jobless claims continued to decline - but continued claims increased

Initial jobless claims fell to 212,000, (< expected 219,000).

While continued claims rose slightly to 1.895 million (> expected 1.88 million).

→ Fewer people being laid off, but re-hiring process taking longer.

Nationwide industrial production declines - despite positive recovery in New York and Philly production indices

Nationwide industrial production declines for the first time in three months

Overall industrial production index declines -0.1% MoM (< expected +0.3%), pulling annual growth down +0.03% YoY.

Mining output drops the most in ~3 years, down 2.3% MoM due to decline in oil and gas extraction activity during winter.

Industrial sector manufacturing output declines -0.5% MoM in January, pulling YoY down 0.9%...

Effective production capacity falls to 76.6%1.6% below long-term average and lowest since April 2021.

Overall industrial capacity utilization rate falls to 78.5%.

NY Empire production index rebounds after January decline

February NY Empire Manufacturing Index recovers to -2.4 vs. significant decline last month (> estimate: -12.5 & previous: -43.7).

Details:

New orders: -6.3 vs. -49.4 previous month.
Purchase prices: 33.0 (>13.2 previous) | Selling prices: 17.0 (> 9.5 previous.

→ Input costs and selling prices for goods both rising rapidly.

Employment: -0.2 vs. -6.9 previous month.

→ Little change in hiring.

Unfilled orders: -9.6 (previous: -24.2) | Inventories: -9.6 (previous: -7.4)

February Philly Fed manufacturing index turns positive

February Philly Fed manufacturing index rises to +5.2 (> -8.1 estimate & -10.6 previous).

Details:

Employment: -10.3 (previous month: -1.8)
New orders: -5.2 (previous month: -17.9)
Purchase prices: +16.6 (previous month: +11.3) | Selling prices: +6.2 (previous month: +6.3)

→ Price index rises but still below long-term average.

Shipments: +10.7 (previous month: -6.2) | Delivery time: -21.1
Average employee workweek: +1.4 (previous month: -0.9)

Earnings reports: Cisco, John Deere

Cisco ER: Cuts more than 4,000 jobs, lowers annual revenue forecast

Remaining Performance Obligations (RPO): +12% YoY, reaches 35.7 billion USD.
Revenue: -6% YoY down to 12.8 billion USD (beat estimate by 100 million USD).
- Orders: -12% YoY and expected to struggle to recover in the second half.
Non-GAAP EPS: 0.87 USD (beat estimate by 0.03 USD).

FY24 guidance cut:

Revenue: ~52 billion USD (below estimate by 2.4 billion USD).
Non-GAAP EPS: ~2.67 USD (below estimate by 1.2 USD).

Cisco plans to cut 5% of workforce (~4,000 employees) due to declining sales.

John Deere ER: Stock falls on agriculture cycle concerns

Deere beats revenue expectations but stock still falls:

Investors pessimistic on agricultural machinery stocks, positive financial report fails to salvage the situation.

Net income: 1.751 billion USD (< previous 1.959 billion USD).
EPS: 6.23 USD (> expectation 5.26 USD).
Net revenue: 10.486 billion USD (> expectation 10.3 billion USD).

FY2024 outlook:

Net income: ~ 7.50 - 7.75 billion USD.
EPS: 21 USD (lower than expectation 23 USD).

Agricultural cycle turning down causing farmers to spend less → Deere sales down YoY.

Corn prices continue to fall to lowest level since Dec 2020.

Other news:

Builders' expectations (NAHB index) rise to 48 (> estimate 46), highest since August as mortgage rates cool.
- Expected and current sales + pool of potential buyers all up.
- Expected share of single-family homes to rise ~ 5% this year.
Super Micro Computer stock up over 1000% in just over half a year thanks to strong AI wave. SMC now the 161st largest public company in the US.
SpaceX officially moves incorporation from Delaware to Texas just weeks after Delaware court voids Elon Musk's $56 billion compensation package.
- Delaware currently the most popular state for company incorporation.
Both Japan and UK fall into technical recession (GDP down 2 consecutive quarters despite no rise in unemployment)
- Japan also loses world's 3rd largest economy spot to Germany.

OpenAI develops web search service to compete with Google: Google stock drops sharply this morning.
Fed just released hypothetical scenarios for Stress Test for major banks:
- Stress test evaluates operating capacity and recovery of major banks under worst economic conditions.
- Worst assumptions in stress test for next year: unemployment rate up to 5.6 - 10% and real GDP growth -11.6%.