Consumer Confidence, Southwest Airlines, Unicorns, and More!
Editor’s Note: TGIF, dear reader!
Now let’s get to it!
Consumer Confidence Takes a Surprise Downturn
According to the Conference Board, consumer confidence took a significant hit in September. The organization’s Consumer Confidence Index fell to 98.7, down from 105.6 in August.
This 6.9-point dropoff marks the largest monthly decline in over three years, highlighting growing concerns over jobs, inflation, and business conditions. By contrast, the index had a reading of 132.6 back in February 2020 — just before the onset of the COVID-19 pandemic.
The drop in consumer confidence is a worrisome sign for the economy because the index is widely considered a reliable gauge of how optimistic or pessimistic consumers feel about economic conditions.
The Conference Board found that all five of the components it tracks declined in September. The most significant decline occurred among those aged 35-54, especially individuals earning less than $50,000 annually.
According to Dana Peterson, chief economist of the Conference Board, “Consumers’ assessments of current business conditions turned negative while views of the current labor market situation softened further.”
The survey showed that consumers are increasingly worried about job prospects, with fewer respondents reporting that jobs are “plentiful” (dropping to 30.9% from 32.7% in August) and more saying jobs are “hard to get” (rising to 18.3% from 16.8%).
This sentiment is reinforced by a growing sense of economic unease. Consumers are increasingly pessimistic about both current and future labor market conditions, and the outlook for business conditions appears equally grim.
The present situation index, which measures consumers’ view of current business and labor market conditions, dropped by 10.3 points, to 124.3.
Meanwhile, the expectations index, which looks ahead, fell by 4.6 points, to 81.7 — dangerously close to 80, a level typically associated with recession concerns.
Inflation continues to be a major concern for consumers, with the 12-month inflation outlook rising to 5.2%.
Rising prices — particularly for essential goods — are at the forefront of consumer worries.
The Conference Board’s data aligns with recent Federal Reserve actions, which are aimed at combating inflation while managing concerns about a weakening labor market.
The survey’s timing is noteworthy. It was conducted before the Federal Reserve announced its decision to lower interest rates by half a percentage point — its first rate cut in four years.
The move was designed to create a more favorable outlook for inflation and address concerns about softening employment figures.
However, the results of the consumer confidence survey suggest that even with the Fed’s efforts, consumers remain deeply concerned about the economy’s direction.
Southwest Raises Revenue Forecast for 2024
Southwest Airlines (NYSE: LUV) has raised its revenue forecast for the third quarter, expecting unit revenue to grow by up to 3%. That’s a significant revision from its previous forecast of a decline of as much as 2%.
The improved outlook comes thanks partly to rebookings from passengers affected by the July CrowdStrike (NSDQ: CRWD) outage that impacted several airlines.
In addition to the improved revenue forecast, Southwest announced a $2.5 billion share buyback program, reflecting its confidence in its financial health and a desire to return value to shareholders.
Southwest is also adding Bob Fornaro, a veteran industry figure who previously led Spirit Airlines (NYSE: SAVE) to its board of directors. This can be seen as a strategic move because the airline seeks to fend off pressure from activist investor Elliott Investment Management.
Elliott has been pushing for changes in Southwest’s leadership, citing concerns about the company’s direction.
In response, Southwest’s CEO Bob Jordan and other executives presented a new vision for the airline’s future during an investor day at its Dallas headquarters.
Key elements of this plan include significant changes to Southwest’s business model, such as introducing assigned seating and extra-legroom options, which are expected to generate additional revenue.
However, these changes aren’t expected to take effect until 2026 due to the time required for regulatory approval and aircraft modifications.
Southwest estimates that the new cabin features will generate $1.7 billion in earnings before interest and taxes by 2027. The extra-legroom seats will offer at least 34 inches of legroom, compared to the standard 31 inches. This move is part of Southwest’s effort to enhance the customer experience while boosting profitability.
Despite these changes, Southwest remains committed to its longstanding policy of allowing passengers to check two pieces of luggage for free, a strategy the airline believes provides a competitive advantage that outweighs the potential revenue from charging for baggage.
Southwest is also facing challenges related to aircraft deliveries from Boeing (NYSE: BA).
Delays in deliveries of the 737 Max 7 have forced the airline to cut unprofitable routes that could have benefited from the smaller plane. To mitigate the impact of these delays, Southwest has curbed its growth and slowed hiring, with plans to optimize operations by turning aircraft around faster and introducing red-eye flights.
The airline has also announced plans to reduce service in Atlanta and could potentially cut more than 300 pilots and flight attendants from the city as part of its cost-reduction efforts.
Global Chip Stocks Pop on Micron’s Forecast
Global semiconductor stocks surged on Thursday after Micron Technology (NSDQ: MU), a U.S.-based memory chip maker, provided better-than-expected revenue guidance for the upcoming quarter.
Micron forecast its revenue to reach $8.7 billion for the quarter ending in November — exceeding analyst expectations of $8.28 billion. This optimistic outlook boosted Micron’s shares by 16% in early trading.
The rally extended beyond Micron, with its larger rivals Samsung Electronics and SK Hynix also benefiting.
Samsung’s shares closed over 4% higher, while SK Hynix saw an impressive 9% jump.
SK Hynix announced that it had begun mass production of a new high-bandwidth memory (HBM) chip, with plans for delivery by the year’s end.
Both Micron and SK Hynix supply memory chips for Nvidia’s (NSDQ: NVDA) AI-focused data center products, and HBM chips are critical for artificial intelligence (AI) processing.
The rally in AI-related semiconductor stocks reflected the continued strength of demand for data center chips. Micron confirmed that its HBM chips are already sold out for 2024 and 2025, indicating robust future demand.
The momentum carried over to other regions, with Japan’s Tokyo Electron rising 8% and SoftBank Group gaining over 4%.
In Europe, Dutch semiconductor equipment maker ASML also saw a rise of more than 4%, along with gains for ASMI, Be Semiconductor, and STMicroelectronics.
Chasing the Unicorns
Despite recent spikes in valuation for companies like OpenAI and SpaceX, ByteDance remains the world’s highest-valued unicorn, valued at $225 billion, according to CB Insights.
As of January 2024, OpenAI was ranked tenth but has since more than doubled its internal valuation.
In contrast, other top companies, including those in fintech (Stripe, Revolut) and apparel (Shein, Fanatics), saw only minor valuation changes since the start of the year.
Take a look:
You will find more infographics at Statista
The term “unicorn” refers to private companies valued at over $1 billion.
According to CB Insights, there are currently around 1,200 such companies globally.
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