Basis Points – June 9, 2022

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Above the Fold          


Could Inflation Be Peaking? 

After what seemed like an eternity of climbing inflation rates, the end may (hopefully) be upon us. Core price indicators such as semiconductors and fertilizer are trending down, giving some economists hope that the worst is in the rearview mirror. As consumers switch their spending habits from goods to services, retail chains are stuck with bloated inventories. This flattening of the supply-side of retail could spell good news for consumers as it may prompt the central bank to slow its monetary tightening plans. Target, for example, is working on canceling orders of home goods and discounting their current inventory to try to move products. This will affect revenue forecasts, which could signal to the Federal Reserve (Fed) that spending is slowing. When spending slows, inflation can drop more organically without the need for such aggressive interest rate hikes.  


Inflation is still above 8% in the U.S. but has been slowing since the 40-year high of 8.5% seen in March. May data is set to be released on Friday, which may show another drop from April’s 8.3%. This rise came, in large part, from the imbalance in spending between goods and services. During the pandemic, restaurants and airports were ghost towns, and people had to spend money on goods to make their lockdown lives more bearable. With restaurants reopening and airports relaxing on mask mandates, consumers are looking to take full advantage of that in the coming summer. Vacations, dinner dates and happy hours are looking much more appealing than spending money on new blankets and casual wear. As spending begins to balance out, the central bank could see that and opt to slow its plans and rate hikes. Even so, many economists believe that we won’t see pre-pandemic rates in the short run, but any reprieve from aggressive tightening from the Fed is good news.   


Three Things          

Small Cities Will Be Harder to Get to This Summer 

With the pilot shortage and surging fuel prices, small city airports are struggling to maintain flight schedules. Regional airlines are finding it harder to keep their planes in the air. This could be a huge blow to the travel industry, as regional flights account for more than 40% of U.S. passenger flights. They will often fill in for major airlines to get passengers to smaller cities more cost-effectively. With these airlines shutting down, passengers are being forced to travel to larger, busier airports, sometimes as far as hundreds of miles away. Matt Koscal of Indiana-based Republic Airways says, “It’s going to get worse before it gets better.”  


Commercial Real Estate Market Finally Cooling 

Commercial real estate finally seems to be cooling off as interest rates continue to climb. As commercial properties were vacated in the first months of the pandemic due to office and retail store closures, commercial real estate investors took advantage of the low-interest rates, banking on an eventual rebound. This stayed true through much of 2021. With the Fed now boosting interest rates aggressively, these sales are starting to fall through as investors can’t justify the purchases with rates as high as they are now. April sales were $39.4 billion, down 16% from April of last year. 


What Happened at Apple’s WWDC? 

While there wasn’t any mention of the new iPhone, or the hotly anticipated virtual-reality headset that has been teased in prerecorded videos as of late, Apple did announce some big advancements for their MacBooks. The biggest announcement may have been the unveiling of the new MacBook Air and MacBook Pro, both sporting the new operating system Ventura and a new processor, the M2. The laptops include longer battery life and quick-charging cables to allow for more work and play to be done on the go. The Ventura OS will be free for supported devices this fall. Apple also showed off its new iPhone OS, iOS 16, which allows users to edit and recall messages up to 15 minutes after sending them. The iOS will also offer Apple’s first Always-On display, allowing users to see select information and notifications without having to unlock the screen.  


In the Know          

Two Surprising Facts About Retail During the Pandemic 

More Store Openings Than Closings:  

The retail industry was arguably the most affected industry during the pandemic. Many stores were forced to shift to eCommerce or close altogether during the lockdowns. However, in 2021, nearly twice as many new retail stores opened as those that had to close. Even with many of these newly opened stores being discount or second-hand retailers, the uptick in openings may mark the end of the “Retail Apocalypse.”  


Ecommerce Still a Fraction of Retail: 

As you may have noticed, eCommerce was a huge reason for certain retailers being able to continue business during the pandemic. At its peak in 2020, eCommerce accounted for 19% of all retail sales. While it now sits at 15%, this is still higher than pre-pandemic levels. Digital marketplaces are doing more than keeping businesses afloat. They are facilitating more reach for up-and-coming small and midsized retailers as well.  


The information contained herein represents the views of Westwood Wealth Management at a specific point in time and is based on information believed to be reliable. No representation or warranty is made concerning the accuracy or completeness of any data compiled herein. Any statements non-factual in nature constitute only current opinion, which is subject to change. Any statements concerning financial market trends are based on current market conditions, which will fluctuate. Past performance is not indicative of future results. All information provided herein is for informational purposes only and is not intended to be, and should not be interpreted as, an offer, solicitation, or recommendation to buy or sell or otherwise invest in any of the securities/sectors/countries that may be mentioned.