Hedgeye Macro reported its 2Q23 Mid Quarter Themes update this morning. There are a handful of slides that support our continued bearish view on the US consumer and US retail. For the link to our Retail 2Q23 Themes Titled “Still Too Early To Be Bullish” Link CLICK HERE. We outline how expectations remain too high on still elevated consumption levels as we are in the middle of a recessionary consumer slowdown. There are a handful of slides and points from our Macro team’s presentation that support and reiterate that stance here in 2Q. We’ll see what the next few weeks of earnings reports/guides bring, but so far our take is companies are not bearish enough on discretionary consumption so comps and earnings remain too high implying hockey sticking improvement in 2H. Looking at this week’s results, TGT probably should have narrowed comps to the lower end of prior guidance (ie down LSD for the year), HD needed to take comps for 2023 to down 6 to 8% vs its guided down 2% to 5%, and TCS might have the first reasonable guide with comps down mid to high teens for the FY ending MARCH 2024 while expecting consumer pressure the whole year. We remain bearish retail and consumer discretionary. If interested in a full replay of the Macro Themes Update call ping , but here are the key callouts and slides from the Macro update.
Credit Availability Drying Up: The consumer has levered up in a high rate interest environment at an unprecedented speed in terms of added credit balances. Then this is the first time in over a decade that it didn’t reduce credit card debt post-holiday. As delinquencies are spiking (direct P&L risk for retailers with private label card exposure), credit standards are tightening leading to a spike in rejections. This limited access is what HD was talking about on credit availability pressuring demand particularly in high ticket pro projects.
Labor Will Be Going From Less Good To Bad Fast: Per the slide below, when the YY change in continuing claims hits this level, it has always led to a subsequent recession. Corporate profits are going negative, layoffs are accelerating and the job market is going to get bad, which is likely to further pressure discretionary consumption. WARN Notices suggest an acceleration in initial claims, its no wonder the household expectations of financial conditions are hitting new lows.
Student Loans Payments = Real Consumption Headwind: Student loan payment deferrals arguably are contributing ~150bps to PCE. When loan payments come back (60 days starting June 30th) there we be yet another discretionary consumption headwind. For context on where these loans lie within the consumer demo… per educationdata.org “6.4% of federal student loan debt belongs to adults under the age of 25. Adults aged 25 to 34 years old hold 30.4% of the federal student loan debt; 38.7% belongs to 35- to 49-year-olds. 24.5% of federal student loan debt is from borrowers aged 50 years and older.” The headwind definitely isn’t isolated to recent 20 something grads, rather concentrated on the core spending demos of 25yo to 49yo. 
