Axios Markets

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August 25, 2021

Today's newsletter is 1,268 words, 5 minutes.

👀 of the day: "The rising usage of smartphones, tablets, computers, and other devices has contributed significantly to increased vision correction needs and consistent new customer growth within the eyewear market." - Warby Parker S-1

1 big thing: Best Buy's surprise

WFH abbreviation on a Best Buy logo-type tag
Illustration: Annelise Capossela/Axios

Best Buy reported surprisingly strong Q2 sales and earnings. The company also had some surprising things to say about customer behavior. Bullish things.

Why it matters: The distribution of COVID vaccines and the reopening of the economy came with an expected shift in spending toward experiences and less on goods.

  • Best Buy’s robust 19.6% jump in comparable-store sales suggests there’s still plenty of demand for the electronics that make being at home more comfortable and enjoyable.

What they’re saying: "Our original outlook also reflected a scenario in which customers would resume or accelerate spend in areas that were slowed during the pandemic, such as travel and dining out," Best Buy CFO Matt Bilunas said on a Tuesday call with analysts.

  • "Although we are seeing some shift in consumer spending occur, the impact has been less pronounced than we previously anticipated."

Zoom out: The pandemic has changed the way people live and work. And companies like Best Buy have been in a position to win.

  • "There has been a dramatic and structural increase in the need for technology," said CEO Corie Barry.
  • She added that customers have an "elevated appetite to upgrade" due to continual tech innovations. And purchasing patterns reflect "permanent life changes, like hybrid work and streaming entertainment content."

Between the lines: Barry notes that they’ve seen some consumer spending shift away from experiences as COVID cases have risen.

  • "But we've just seen this growth continue, honestly, in both experiences and on the retail side," Barry said.
  • She attributed this ability to spend to the consumer having saved a lot of money during the pandemic, leaving them with cash and borrowing capacity to unleash.

The big picture: Business strength amid rising COVID cases is not just a Best Buy story, says Lori Calvasina, RBC Capital Markets head of U.S. equity strategy.

  • "A sizable majority [of S&P 500 companies that announced earnings last week] have emphasized the strong demand, with a noteworthy minority commenting on decelerating growth," Calvasina wrote in a research note.

The bottom line: As long as the Delta variant lingers, uncertainty will remain elevated. So far, consumer spending has been pretty resilient.

2. Catch up quick

The World Bank has halted aid to Afghanistan, citing questions over the legitimacy of Taliban rule. (WSJ)

House Democrats have approved a $3.5 trillion budget resolution. (Axios)

U.S. officials have approved licenses for China's Huawei to buy auto component chips. (Reuters)

3. The new home inventory mirage

Data: Census Bureau, FRED; Chart: Axios Visuals
Data: Census Bureau, FRED; Chart: Axios Visuals

There are a lot of homes available for sale. The catch: you can’t move into them yet.

Why it matters: Strong demand for homes has driven up prices as the supply of homes for sale is at depressed levels.

By the numbers: According to July new home sales report released on Tuesday, the Census Bureau revealed that the inventory of new homes available for sale climbed 5.5% month over month to 367,000 units in July.

  • This is the highest level of new homes for sale since November 2008.

Yes, but: A record low — just 9.8% — of those homes were completed. In other words, most of the inventory was still under construction or not yet started.

  • "This implies that people can't see much of the inventory in the new housing market," Neil Dutta, head of economics at Renaissance Macro Research, tells Axios.

The big picture: There’s no shortage of evidence that suggests the elevated total inventory of new homes for sales belies the fact that demand for homes remains very strong.

  • The median price of a new home sold in July was a record $390,500.
  • During the month, there were 689,000 single-family homes under construction, the highest level since July 2007.

"Sure, we are not seeing desperate buying behavior like earlier in the pandemic, but builders still have plenty of homes to build," Dutta says.

The bottom line: While an unbuilt home is technically something that a seller can sell, it’s usually not something that many buyers will buy.

  • "What happens when the home is finally completed?" Dutta says. "It is sold in less than four months! So, this is tight and perhaps one reason why prices are still running quite firm."

4. The growing push for a green Fed

Illustration of a gold coin with globe etched in it.
Illustration: Aïda Amer/Axios

An environmental group with ties to the White House is pressing the Biden administration to emphasize climate change as it considers nominees to the Federal Reserve, Axios Generate author Ben Geman writes.

Driving the news: Evergreen Action, in a new memo shared with Axios, lays out actions it wants from the Fed.

Why it matters: The memo comes as President Biden is deciding whether to renominate Jerome Powell for another term as Fed chairman. And Randal Quarles' term as the Fed's vice chair for supervision ends in mid-October.

Our thought bubble: Markets like consistency and Powell would provide that. Treasury Secretary Janet Yellen has reportedly told the White House she supports a second term for Powell, which would increase his odds of keeping the job.

  • But progressive Democrats have pressured Biden for an appointment that would take a more proactive approach to regulate banks.

The intrigue: Evergreen is a young-ish group (formed in 2020) but members are well connected.

  • Maggie Thomas, Evergreen's co-founder and former political director, is now chief of staff for White House domestic climate boss Gina McCarthy.
  • The group's staff and advisory board is comprised of veteran Democratic political operatives and activists that work with an array of progressive groups.

State of play: Evergreen wants the Fed to impose "limits on the amount of greenhouse gas pollution that banks can finance through their lending and investment portfolios."

  • It also wants "stress tests" of banks to determine their readiness for climate-related shocks, something the Fed has not yet fully embraced.

Go deeper

5. Delta hasn't spooked the workforce

Source: Morning Consult/Axios Inequality Index; Chart: Axios Visuals
Source: Morning Consult/Axios Inequality Index; Chart: Axios Visuals

Even as the Delta variant continues to spread across the U.S., America’s workforce is relatively unconcerned about its job security, Axios' Kate Marino writes.

Driving the news: According to the latest Morning Consult/Axios Inequality Index survey, the share of individuals who think they might lose their jobs in the next four weeks is far lower than when the wave of COVID outbreaks hit last fall.

Why it matters: The survey responses imply that workers across all income brackets aren’t bracing for another round of business closures or lockdowns in response to the virus. It may also show increasing awareness of the shifting power dynamics — in favor of workers — wrought by the Great Resignation.

The details: About 17% of individuals making less than $50,000 per year said they are worried about job loss in the next month, down from 18% in July — and compared to 28% last November and December.

  • Of those making $50,0000-$100,000 per year, 11% are worried about their job security. That’s actually up from 10% last month, but it’s down from 21.5% last November.
  • In the $100,000 and up category, just 7% are worried about losing their jobs, down from around 16% in November and December.

Of note: The lower income group, which includes loads of public-facing hospitality workers, saw the biggest jump in job security concerns between October 2020 and January 2021, while the other two inched up only mildly.

  • But during this wave, so far, both the low and high-income groups' worry levels actually went down slightly.

The bottom line: "The Delta variant hasn’t materially affected people's jobs, so when we look at pay income losses across the income spectrum, they're largely stable," Morning Consult chief economist John Leer tells Axios.