THE NEW NORMAL, CHAOS THEORY, AND A BLOW TO AMAZON

07-31-24: “What Chipotle and McDonald’s say about the consumer slowdown.” The Economist: “Americans still want more than just the lowest price. Near Schumpeter’s home in Los Angeles are two fast-food restaurants almost kitty-corner to each other, as Americans quaintly put it. In different ways, both help explain one of the biggest puzzles in today’s business environment: the state of the American consumer. One is Chipotle Mexican Grill, a canteen-like restaurant famous for its burritos and bowls of chicken, the cheapest of which comes with rice, beans, salsa and various other toppings, and which costs $10.60. The other is McDonald’s, home of the hamburger. Its cheapest meal deal is $5. It comes with a burger, nuggets, fries and such generous quantities of salt it is a blessing that there is a fizzy drink to wash it down with. You might think Chipotle would be suffering more in a world where consumers face high housing costs, utility bills and petrol prices, their savings are running down, and the job market is getting shakier. Not only is its menu dearer. In recent months the chain, a darling of millennials and gen-Zs, has found a hit squad of TikTok influencers on its case, filming themselves jabbing its bowls of chicken with their forks and accusing it of scrimping on the size of its famously generous portions. But you would be wrong. In an earnings call on July 24th, its boss, Brian Niccol, acknowledged the portion-size problem in a small number of its restaurants and pledged to fix it. Despite the fuss, business boomed in the quarter from April to June. Chipotle’s sales grew by a whopping 18 percent in the period, compared with the same three months in 2023. Demand increased in every income group, Mr. Niccol said. Under the Golden Arches, it was a different story. The lower-income customers of McDonald’s have been feeling the pinch since last year, said Chris Kempczinski, its boss. In the latest quarter the chain’s sales on a like-for-like basis fell by one percent, compared with the previous year. Even the recently-introduced $5 meal deal had yet to boost revenues. The contrasting fortunes of these two chains may befuddle those looking to understand the state of America’s consumers, especially when other industries are also sending mixed messages. But two lessons can be drawn. The first is that it is too soon to conclude that growth in American consumption has stalled. The second is that, even if it has, it is too simplistic to say that the best response for firms is to cut prices.” “Nuggets of truth: In sum, even if American consumers are feeling the pinch, companies that cater to them can still do well if they think creatively. Cutting prices is not the only option. It can spur a race to the bottom, says Danilo Gargiulo of Bernstein, a broker. McDonald’s may be able to cut prices, but so can Burger King. Better to provide value for money, that hard-to-define concept that attracts customers whatever the price. It encompasses both quantity and quality. As an illustration consider, if you will, two of Schumpeter’s recent lunches. At Chipotle, his $10.60 chicken bowl overflowed with tasty food. He ate half, and took the other half home for supper. In other words, two meals for the price of one. His $5 McDonald’s meal deal was not as skimpy as he expected. But it was so salty, he threw half of it away.” HPS Analysis: Keeping in mind that this a British observation of the American consumer, it does make a lot of sense. “Cutting prices is not the only option.” Although in the case of the American bicycle business it is too late to turn away from “… a race to the bottom” that is driven by the abandonment of just-in-time inventory control and management because of the chaos of supply chain disruptions, the ongoing uncertainty of geopolitical shifts, and recasting of a whole new kind of globalization. The comfortable certainty of decades of stability has quickly evolved from a black-swan pandemic into post-pandemic probability and risk management that is dependent on understanding chaos theory and the stunning realization that we will never return to any semblance of the way it was. We will now have to assess what to do after the race.

08-01 24: “Analysis: CPSC's Amazon decision is a reminder to the industry.” Bicycle Retailer and Industry News: “Editor's note: Industry attorney Steven Hansen shared the following analysis of this week's administrative decision by the Consumer Product Safety Commission, which found that Amazon should be considered a distributor of the products it sells, and is therefore responsible for the safety of the products. Hansen's website is www.swhlaw.com. This is a very critical administrative decision by the Consumer Product Safety Commission. This case was brought by the CPSC against Amazon in July of 2021 and was just resolved this July 2024. I suspect Amazon will appeal this decision to a federal court as it's a big decision against Amazon.What we find interesting and enlightening for our readers is two points. First, Amazon argued before an Administrative Law Judge and the Commission that it was not a 'distributor' and thus bore no responsibility for the safety of the products sold under its 'Fulfilled by Amazon' (FBA) program. Secondly, this is a reminder to all distributors and retailers out there in consumer product land that the CPSC regulations place a legal recall obligation on all entities in the chain of distribution of the product. This means if the brand (in the USA) or the manufacturer (usually in Asia and usually will not initiate voluntary recalls) does NOT conduct a recall, then you (the distributor, importer or even main retailer) may have the obligation to do so as the next entity down the chain. CPSC regulations place a legal recall obligation on all entities in the chain of distribution of the product. The recall obligation is generally when any product does not comply with a federal safety law (i.e. 16 CFR 1512 et seq) or when the product may comply with a federal regulation but still contains a 'substantial product hazard.' Amazon knew the second point and so it just tried to argue it was NOT a distributor.  What we find interesting is that the Amazon case was filed about a year after California's watershed decision also held that Amazon was a 'distributor' or 'seller' in its FBA programs. (FYI the appeals court judge that wrote that opinion is now the Chief Justice of the California Supreme Court, if that tells you something).  Given what is at stake for Amazon, expect this to be appealed and as all states and federal districts are not aligned on this issue for Amazon being a true distributor the district or judges where this appeal is heard will be critical.” HPS Analysis: This is an excellent and timely article and HPS’ compliments to Steve Hansen for writing it and to BRAIN for publishing it. The article is about a “very critical administrative decision by the Consumer Product Safety Commission" which found that Amazon should be considered a distributor of the products it sells and is therefore responsible for the safety of those products. CPSC is taking a stand and making it clear that third party sellers, like Amazon, are distributors just like wholesalers and retailers of consumer goods that are responsible for the safety of the products they sell, including recalls. Amazon has argued, unsuccessfully, that it is not a distributor and is not responsible for product and consumer safety. While Amazon will appeal this administrative decision, the tide is slowly turning from a government “hands-off-business” attitude when it comes to regulation – to make business responsible for the safety of the products they sell – including the big DTC retailers. The results of the November election will determine the short-term attitude of the federal government toward business taking responsibility for the products and services it sells.

08-02-24: “U.S. Unemployment Rate Rises Again, Cementing Path to Fed Rate Cut.” Bloomberg: “U.S. hiring slowed markedly in July and the unemployment rate rose to an almost three-year high, raising recession concerns and putting the Federal Reserve solidly on a path to cutting interest rates in September. Nonfarm payrolls rose by 114,000 — one of the weakest prints since the pandemic — and job growth was revised lower in the prior two months. The unemployment rate unexpectedly climbed for a fourth month to 4.3 percent, triggering a closely watched recession indicator and hammering stocks. More Americans considered long-term unemployed, working part-time for economic reasons. Source: Bureau of Labor Statistics. Friday’s figures cap off a week of disappointing data that heighten concerns of a more abrupt downshift in the economy, and challenge Fed Chair Jerome Powell’s characterization of the slowdown in the job market as 'gradual.' However, some aspects of the report may have been distorted by Hurricane Beryl — which hit Texas in the week the survey data were collected — and may rebound in August. The S&P 500 sunk to a two-month low and Treasury yields slumped as traders increasingly bet that the Fed would pursue a more aggressive rate cut in September. Several economists — many of whom already thought the Fed should have lowered rates at its meeting this week — again criticized the central bank for not moving.” HPS Analysis: The Federal Reserve increased the prime rate to use the tools at its command to slow inflation by increasing the interest on loans and restricting the availability of funds, and hopefully achieving a soft landing without pushing the economy into a recession. With this objective now close at hand the final steps are fraught with danger, including the blind panic shown by the markets in early August and September, as we wait for the Fed to make a rate cut. A soft landing is still in sight, and the markets are all abuzz with speculation about a quarter point or a half point rate cut this month. For the bicycle business, there will be a delay in the financial benefit of more money available at lower interest rates, because it takes time for prime rate cuts to translate into local bank rate funds availability at lower interest rates. Meanwhile, our industry is still in a race to the bottom with inflated value that has been and will continue to be written down as the pressure continues to turn inventory on-hand into liquidity and tightly control cash commitments for inbound, on-order and forecast goods.

08-12-24: “Vosper: 'The New Normal' is a lot more normal than you think it is.” Bicycle Retailer and Industry News: “As late as December of 2023, any number of industry pundits had publicly forecasted that the sales/supply situation will have normalized itself by now, which is to say, the third quarter of 2024. By then, they said, the cycling industry would be back to more or less what it was like in 2014–2019. For the record, I was not one of them. Instead, we find ourselves in a bizarre market reality where retail sales are spotty and many — but by no means all — customers remain shy of purchasing. We are plagued by both under- and over-supply of bikes to sell, depending on model type and price point. Round after round of industry layoffs continue with no sign of letup. On the national front, a jittery stock market is stoking long-held fears of pending recession and a further decline in consumer confidence. On the other hand, at least some customers are starting to come into retail businesses and actually making purchases. (The linked AP article features a nice picture of a consumer shopping at University Bicycles in Boulder.) And according to both PeopleForBikes and the National Sporting Goods Association, ridership is holding steady at COVID-era levels, and is higher than it's been since 2005. So the news is not so much doom and gloom, but more of a mixed bag. The big picture: The industry is struggling with two problems: too many inventory dollars at suppliers (combined with shortages of the models that are in demand with retailers), and not enough customers for those overstocked bikes at retail.” (NOTE: Vosper includes a chart BRAIN made from PeopleForBikes data showing supplier inventory vs. sell-in to retailers, in dollars, from November of 2017 through June 2024 which HPS has chosen not to show, and readers are referred to the original article). “You can see the historically normal inventory levels 2018–2019, the drop-off in response to demand during the COVID years, and the build-up of record levels of inventory beginning in late 2022, reaching its peak in summer of 2023. You can also see that those levels are starting to come down, although they're still very high compared to historic norms. With the exception of the pandemic years, sell-in to dealers has remained fairly constant. But in 2018, the ratio of inventory dollars to sell-in was 2.9:1. As of June 2024, it was 4.1:1. (Thanks to BRAIN Editor-in-Chief Stephen Frothingham for these stats.) I reached out via email to PeopleForBikes senior research manager Liam Donoghue to help clarify what's going on. Here's what he had to say about current conditions: ‘May 2024 sell-in (dollars) was 8 percent higher than the May average over the four years pre-COVID (2016–2019), but was 35 percent lower than the four years since the pandemic (2020–2023). It's tracking pretty darn close to 2019 and the first three months, at least, of 2020.’ “In terms of supplier inventory, Donoghue said, units in May 2024 track within 1 percent of 2017 and 2019 levels, but the dollar inventory (which is what the chart shows) is 74 percent–131 percent higher. ‘So a very similar level of total bikes are in supplier inventory compared to pre-pandemic, but they're simply skewed much more expensive now.’ And, as the chart further shows, those excess inventory dollars are coming down, just not as fast as we might prefer. Moreover, he said, ‘Bicycle sales at retail are telling a similar story in that total dollar volume in May 2024 is within +/- 6 percent of 2016–2019 numbers, but unit volume is down 29–36 percent for the same pre-COVID years.’ “Which translates to: Dealer sales dollars to consumers are comparable with historic norms, they're just not selling as many units. And, dealers tell me, bike sales — whether in units or dollars — vary widely from market to market and even from store to store. The dealer's view: ”Current dealer margins are so low that the upside of selling a few more units pales beside the risk of holding onto inventory that doesn't turn.” HPS Analysis: Rick Vosper has done his usual excellent job of researching a timely and well-crafted article that we highly recommend. An important takeaway for HPS is the realization that Rick has captured and described the Specialty Bicycle Retail channel of trade – which is one of six channels of U.S. bicycle business channels of trade to emerge after the pandemic. Going into the pandemic the specialty bicycle retail channel was the highest revenue-producing channel, and the mass merchant channel was the highest unit-producing channel. Full-line sporting goods and specialty outdoor were in between, and the two smallest from either measure, dollars or units, were mobile and direct-to-consumer. HPS submits that direct-to-consumer, or DTC, surged in both dollars and units during the pandemic, and along with e-bikes changed the order of the channels of trade by both dollars and units. Keeping in mind that HPS uses the definition of “bicycle” as found in 16 CFR 1512: “as either (1) a two-wheeled vehicle having a rear drive wheel solely human-powered; or (2) a two- or three-wheeled vehicle with fully operable pedals and an electric motor of less than 750 watts (1 h.p.), whose maximum speed on a paved level surface, when powered solely by such a motor while ridden by an operator who weighs 170 pounds, is less than 20 mph.” HPS submits that the reason “… a very similar level of total bikes are in supplier inventory compared to pre-pandemic, but they're simply skewed much more expensive now,” which we highlighted in Rick’s article above, is two-fold. First is the higher value of e-bikes, which now represent a larger percentage of the inventory of all channels of U.S. channels of trade, and second is because the average value of all bicycles of all categories increased during the pandemic and the immediate post-pandemic period. The reasons for the rather dramatic increase in the value of all bicycles between 2020 and 2022 is too large a topic to peel back here, but HPS believes this is the most important and detrimental economic issue facing the global as well as the U.S. bicycle business, after it finished the race to the bottom and finds that what is called the “new normal” that will be nothing close to or resembling what we knew.

08-12-24: “Rad Power makes fifth workforce reduction in the past two years.” Bicycle Retailer and Industry News: “Rad Power Bikes laid off an undisclosed number of employees in July, the fifth workforce reduction since 2022. ’Last month, Rad Power Bikes made the difficult decision to reduce our team's size so we can ensure the brand's longevity, continue on our mission, and serve our rider community,’ a Rad Power Bikes spokesperson emailed to BRAIN. ‘We are doing all we can to approach this very difficult time with compassion and care. We believe in and care deeply about our vision to create a world where transportation is energy efficient, enjoyable, and accessible to all. We have faced the challenges many businesses have, including rising costs and economic headwinds, and this difficult decision was necessary to ensure the long-term sustainability of Rad's business.’ “The spokesperson would not say how many employees were affected or in what departments the cuts were made. Support will continue through phone and chat services for the 1,200 retail and service providers throughout North America, and in its Rad Retail locations, the spokesperson said. Following the reduction of about 100 employees in April 2022, Rad Power laid off another 63 three months later, and in December 2022, an undisclosed number were let go. In April 2023, Rad Power had another round of layoffs.” HPS Analysis: Rad Power Bikes is an example of the new wave of bicycle brands featuring electric propulsion that emerged as start-ups before the pandemic, in this case in 2015 as a direct-to-consumer (DTC) retailer. This new wave of bicycle brands fueled the growth of the DTC channel of trade and its eventual emergence as one of the most important U.S. bicycle channels of trade. Rad Power Bikes joined PeopleForBikes early in the pandemic and joined the PFB board. After raising millions of start-up and second-stage investment, expanding to Europe and becoming one of the top tier e-bike brands in North America during the pandemic, Rad Power Bikes experienced the combined financial hits of supply chain disruptions, declining sales and increasing regulation. This latest round of layoffs is, as the BRAIN article states, a continuation of the issues that emerged in 2022, and confirmed that the new wave of DTC brands don’t walk on water, and were in the same economic boat as the rest of the new post-pandemic micromobility business that evolved out of the old pre-pandemic bicycle business.

08-12-24: “Giant Group revenue down 12.6 percent in first half.” Bicycle Retailer and Industry News: “Giant Group announced that its first-half revenues were NT$37.23 billion ($1.147 billion in U.S. dollars), a 12.6 percent decline from the same period last year. The company said that due to profit growth in China, its gross margin rate for the period was 21.3 percent and net profit after tax was NT$1.67 billion, a decrease of 17.1 percent from last year. Earnings per share was NT$4.27. The company said its second quarter revenue was down 5.8 percent, to NT$21.17 billion and gross margin in the quarter was 22.2 percent, which it attributed to a greater mix of sales of its own brands' products vs. its OE customers.” ‘Looking forward to the second half of the year, inventory adjustments in the European and American markets will return to normal, and the cycling trend in the Chinese market will continue to drive performance growth. It can be expected that the group's operations will gradually improve,’ the company said in a press statement. Taiwan stock market data shows the company's revenue story improved in the first month of the third quarter. July revenues were NT$7.573 billion, up 16.62 percent from the same month last year. That brought year to date revenues to 8.66 percent below the same period in 2023.” HPS Analysis: Giant is unique among all the brands, top-tier or otherwise, in the major markets of the world. It is the number three specialty bicycle retail channel brand in North America, behind number one Trek, and number two Specialized. Giant is also a leading original equipment manufacturer or OEM for the Trek brand with factories in Taiwan and China. One of Giant's Chinese plants is dedicated to e-bikes, and it has manufactured high-quality e-bikes using Yamaha motors when lead-acid batteries were in the power source of choice, and Panasonic and LG lithium-ion batteries after they were introduced in the 1990’s. In addition, Giant has manufacturing plants in Europe as well as China, and has been a long-time supporter of Shimano, as well as Taiwanese component brands that Giant helped both finance and promote in the 1980’s. Giant is a public company with its stock traded on the Taipei stock exchange. Bottom line – Giant Group is an important global player in the bicycle industry, and it can be generally said that as goes Giant Group and Shimano, so goes the global bicycle industry. HPS believes that there will be no real progress made to bring bicycle manufacturing back to North America until Giant Group makes a commitment to invest in brick and mortar construction, and concurrently encourages and helps finance a group of core component manufacturers to make similar investments in North America.

08-12-24: “De Minimis exception faces mounting opposition.” The Wall Street Journal Logistics Report: U.S. lawmakers are moving to rein back the trade provisions that have helped online sellers Temu and Shein rush into the American retail market. A bipartisan group of legislators want to block textiles and apparel from being imported through the de minimis provision that allows for little scrutiny and no duties. The WSJ’s Richard Vanderford reports the de minimis exemption has faced mounting scrutiny as the number of packages entering through that route has surpassed one billion, largely from Chinese suppliers. The explosive growth illustrates how new online tools, including the ability to reach countless customers, along with a more fragmented delivery market, have upended internet commerce. Not everyone favors the action. The National Foreign Trade Council, which includes Amazon, FedEx and DHL on its board, says new restrictions would amount to ‘a regressive tax increase that slows supply chains and harms small businesses and consumers alike.’ “ HPS Analysis:  The National Foreign Trade Council isn’t the only American business association or company lobbying hard in favor of the de minimis exception. Chinese owned and based DTC fashion brands are reported to be spending $600 million per month to lobby Washington to keep the de minimis exception in place, without changes. The bicycle business is involved because cheap, hazardous lithium-ion replacement batteries for e-bikes and e-scooters are being imported duty free, without inspection under the de minimis exception, and adding to the hazardous lithium-ion batteries flooding New York City, surrounding densely populated communities, as well as other towns and cities throughout the country. While HPS feels the bicycle business could do more, the biggest issue raised by Congress is the illegal drug trade being conducted using the de minimis exception. There is nothing for the bicycle business to like about the de minimis exception, and it is in everyone’s best interest to do everything possible to make it go away.

08-13-24: “Port of Ningbo explosion yet another catalyst for potential congestion.” Sourcing Journal: “A terminal at China’s Port of Ningbo-Zhoushan reopened Monday after an explosion on a container ship forced it to close over the weekend. The Yang Ming Mobility was berthed at Ningbo’s Beilun Phase 3 Terminal when a container exploded Friday, sending a vast plume of flames and smoke into the air. Immediate firefighting measures were taken, Yang Ming said in a Saturday statement. Initial investigations suggest the explosion came from lithium batteries and the organic compound tert-butyl peroxybenzoate, which must be stored in temperatures not exceeding 30 degrees Celsius. The items were reportedly held in a reefer container, which is designed for goods that need to be temperature controlled during shipping. All crew members and on-site personnel were safe, and no casualties have been reported.” HPS Analysis: There is growing awareness of the D.O.T. rules and regulations governing the shipping of lithium-ion batteries by sea, air and truck. This is an incident of thermal run-away that has and will affect the third largest container port in China, and while the container ship was not damaged severely and will continue in service, it will add to the global slowdown in container shipments to the U.S. It represents the kind of incident the American bicycle business needs to be aware of, and do everything possible to work with its OEMs and suppliers to prevent.

08-14-24: “Core U.S. inflation eases a fourth month, sealing Fed rate cut.” Bloomberg: “Underlying U.S. inflation eased for a fourth month on an annual basis in July, keeping the Federal Reserve on track to lower interest rates next month. The so-called core consumer price index — which excludes food and energy costs — increased 3.2 percent in July from a year ago, still the slowest pace since early 2021. The monthly measure rose 0.2 percent, a slight pickup from June’s surprisingly low reading, Bureau of Labor Statistics figures showed Wednesday. Economists see the core gauge as a better indicator of underlying inflation than the overall CPI. That measure also climbed 0.2 percent from the prior month and 2.9 percent from a year ago. BLS said nearly 90 percent of the monthly advance was due to shelter, which accelerated from June.” “Inflation is still broadly on a downward trend as the economy slowly shifts into a lower gear. Combined with a softening job market, the Fed is widely expected to start lowering interest rates next month, while the size of the cut will likely be determined by more incoming data.” HPS Analysis: This is more solid evidence in the form of the core consumer index, as opposed to knee-jerk reactions, the re-enforce the likelihood of a rate cut by the Fed this month, as we described in more detail earlier in this newsletter.

08-15-24: “Walmart lifts yearly outlook as shoppers hunt for bargains.” Bloomberg: "“Its sales guidance for the full year, buoyed by consumers buying necessities and seeking deals even as they curtail spending elsewhere." "The Bentonville, Arkansas-based company said it now expects net sales to rise as much as 4.75 percent for the year, versus previous guidance for a gain of as much as four percent. It also raised its targets for operating income and profits. ‘We are seeing that the consumer continues to be discerning, choiceful, value-seeking and focusing on essentials,' Chief Financial Officer John David Rainey said in an interview on Thursday. ‘We are not seeing any incremental fraying of our customers’ financial health.’ Walmart shares rose as much as 8.4 percent in New York trading, the biggest intraday gain since November 2022. The stock was up 31 percent year to date through Wednesday’s close, compared with a 14 percent gain for the S&P 500 Index. Shares of rival Target Corp. were also up as much as six percent. In recent weeks, investors have tried to make sense of murky job markets and stock volatility by looking at companies for clues. Walmart’s bullishness points to an increasingly choosy U.S. consumer facing economic uncertainty and high interest rates. Americans are pulling back on travel and deferring big home renovations, with retailers from Home Depot Inc. to Wayfair Inc. signaling a weakening spending environment. Instead, people are prioritizing on essentials like groceries, which has given Walmart’s business a boost. Each month of the quarter remained relatively consistent, and there was no pullback during the latest quarter in July. Higher guidance is a reflection of the company’s outperformance in the first half of the year, Rainey said, adding that uncertainty still lingers due to the upcoming U.S. election and geopolitical unrest in the Middle East.” “The company’s sales of general merchandise grew after 11 consecutive quarters of declines. The category, which has higher margins, has dragged on the business in recent years as consumers pulled back from discretionary items. Walmart said its broader assortment of these products is drawing consumers. ‘We aren’t experiencing a weaker consumer overall,’ Chief Executive Officer Doug McMillon said on a call with analysts. ‘They want value. They want a broad assortment of items and services. Notable deflation is unlikely going forward, he said. Prices of general merchandise products, which refer to non-essential items like appliances, are unlikely to decline much further. Packaged food prices are still inching up, with some suppliers discussing potential increases, and Walmart is pushing back, he said. Walmart has been an outlier among consumer companies generally facing weaker demand as value-seeking behaviors propel its business.” HPS Analysis:   This is a very interesting sketch of Walmart’s strategy as American’s become more targeted in their shopping and purchases, and are searching for more choice at lower prices. They are also shopping online and picking up at the store, or coming into the store to touch, feel and ask questions about what they have decided to purchase. As noted earlier in this month's newsletter, cutting prices isn’t all the consumer wants. They certainly want a bargain, but also variety and choices. Retail sales picked up in July by the most in nearly two years, pointing to an American consumer continuing to defy expectations. Consumers are increasingly using credit cards and other loans to support their purchases as pandemic savings dry up and wage growth slows. That has led consumers to prioritize essentials and hunt for bargains. E-commerce sales rose at a modest clip in the month, as did private label and house brands. Bike shops have limited choices when it comes to private label merchandise, but the previously-owned market does offer the ability to provide name brands at bargain prices and maintain margins.

08-16-24: “Stocks see best week in ’24 as buyers race back in.” Bloomberg: “A flurry of data showing U.S. economic resilience drove stocks to their best week this year, with dip buyers stepping in after a recent rout.Equities rose on Friday, with the S&P 500 extending a seven-day rally to 6.8 percent — the best performance in such a span since October 2022. Just a week ahead of Jerome Powell’s speech in Jackson Hole, Wyoming, traders hope the Federal Reserve chief will set expectations for the next policy gathering. While officials have brought down inflation, the labor market is still a wild card. The stock market halted a streak of four weeks of losses that had been partially driven by concern the Fed wouldn’t reduce borrowing costs fast enough to prevent a deeper slowdown in the largest economy. Data this week showing ebbing inflation and a resilient consumer rekindled hopes the Fed will be able to achieve a landing. 'This week’s reassuring inflation data has bolstered investor confidence, leading to a notable surge in market optimism,’ said Mark Hackett at Nationwide. ‘The persistent ‘buy-the-dip’ mentality remains in play, as investors who had moved to the sidelines over the last month raced to get back in.’ “The S&P 500 rose to around 5,555. Most megacaps gained, with Nvidia Corp. leading the charge. Nike Inc. saw its longest winning streak in more than eight years. Applied Materials Inc. sank after a sales forecast that disappointed investors looking for a bigger payoff from artificial-intelligence spending. Wall Street’s ‘fear gauge’ - the VIX - dropped below 15. Treasury 10-year yields fell three basis points to 3.88 percent. The dollar had its third straight week losses — the longest streak since March. Hedge funds turned bullish on Japan’s currency for the first time since 2021 after sharp swings in foreign-exchange markets led to a blow-up of a popular yen trade. Gold topped $2,500 on hopes the Fed is edging closer to cutting rates.” HPS Analysis: Proving that Wall Street is all about money, the stock markets go from three weeks of losses and a literal melt-down early in the month, to the best week of 2024 by August 16. There is every indication that the Fed will cut the prime rate in September and the traders that were on the sidelines will jump in and buy, generating the best performance since sometime in 2022. While not stability, this financial performance shows the resilience still in the economy as the Fed continues to aim for a soft landing. There will be more air pockets and bumps between now and year's end, and the bicycle business will still have to deal with its debt wall, but at least the stock market hasn’t panicked – yet.

08-16-24: “Retailer’s rush to get goods in ahead of possible strike at ports.” Chain Store Age CSA: “Rising freight rates have also prompted importers to ship earlier. Monthly inbound cargo volume at the nation’s major container ports could see a near-record surge this month as retailers bring in merchandise ahead of a potential strike at East Coast and Gulf Coast ports this fall. That’s according to the latest Global Port Tracker report released today by the National Retail Federation (NRF) and Hackett Associates. The contract between the International Longshoremen’s Association and the United States Maritime Alliance covering East Coast and Gulf Coast ports is set to expire on Sept. 30. The ILA represents 45,000 dockworkers at three dozen U.S. ports from Maine to Texas and handle half of the nation's ocean trade. Negotiations have broken down and the ILA has threatened to strike if a new contract is not reached by then. NRF has continued to urge the parties to return to the table to continue negotiations. Rising freight rates have also prompted importers to ship earlier. ‘Many retailers have taken precautions including earlier shipping and shifting cargo to West Coast ports,’ said Jonathan Gold, VP for supply chain and customs policy, NRF. ‘We hope to see both sides resolve this issue before the current contract expires because retailers and the economy cannot afford to see a prolonged strike.’ The potential strike comes on top of ongoing disruption issues including the attacks on commercial vessels in the Red Sea. Vessel diversions have led to increased shipping times and costs and have led to equipment shortages and congestion in Asian ports, noted Gold. ‘Importers are continuing to grow their inventories and are shifting cargo to the West Coast as a precaution against potential labor disruptions,’ Hackett Associates founder Ben Hackett said. ‘We calculate that the shift has pushed the West Coast share of cargo we track to above 50 percent for the first time in over three years.’“ HPS Analysis:  I believe one of Newton’s Laws states: For every action there is an equal and opposite reaction. In this case the action is a threatened East Coast and Gulf Coast dock strike and the reaction is importers rushing to bring in merchandise early and ahead of the year-end shopping season. For retailers, including those selling bicycles, e-bikes and all related products, this is most unwelcome news and throws the careful planning in the face of lagging sales to balance on-hand inventory with in-transit, planned production and forecasts in Asia up for grabs. Not only does this create a logistics problem, it exacerbates a financial problem requiring cashing Letters of Credit and turning them into inventory in the pipeline earlier than planned. While a potential East Coast Gulf Coast dock strike was known as early as last year, the likelihood was considered remote based on the settlement of the West Coast Port labor agreement and the signing of a new union contract. As this gets down to the wire, HPS will keep you advised. This is also why Chaos Theory is gaining in popularity as a tool in forecaster’s tool boxes.

08-16-24: “Consumer sentiment rises for first time in months.” Chain Store Age CSA: “The University of Michigan’s Index of Consumer Sentiment rose to 67.8 in a preliminary August reading, up from 66.4 in the prior month, marking the first increase since June. Consumers’ views on current economic conditions fell to 60.9 in August from 62.7 in the prior month. But the index on expectations about the future rose to 72.1 — the highest level since April — from 68.8. Presidential election developments were a major driver of the August survey, according to Joanne Hsu, director, Surveys of Consumers. Sentiment for Democrats rose 6 percent as Vice President Kamala Harris gained ground in the wake of replacing Joe Biden as the Democratic nominee for president.  Sentiment for Republicans fell 5 percent. ‘Overall, expectations strengthened for both personal finances and the five-year economic outlook, which reached its highest reading in four months, consistent with the fact that election developments can influence future expectations but are unlikely to alter current assessments,’ Hsu said. Year-ahead inflation expectations came in at 2.9 percent for the second straight month. These expectations ranged between 2.3 to 3.0 percent in the two years prior to the pandemic. Long-run inflation expectations came in at 3.0 percent, unchanged from the last five months. These expectations remain somewhat elevated relative to the 2.2-2.6 percent range seen in the two years pre-pandemic.” HPS Analysis: This rise in consumer sentiment seems rooted in recent changes in the political landscape and the campaigns that culminate in the national election this November. However, as the article indicates, American consumer expectations strengthened for both personal finances and the five-year economic outlook that can translate into increased interest in and sales of bicycles and related products. Like the economy, consumer sentiment ebbs and flows, but steady gains are a positive trend for micromobility overall.

08-16-24: “U.S. presses the ‘reset button' on technology that lets cars talk to each other.” National Public Radio npr: “Safety advocates have been touting the potential of technology that allows vehicles to communicate wirelessly for years. So far, the rollout has been slow and uneven. Now the U.S. Department of Transportation is releasing a roadmap it hopes will speed up deployment of that technology — and save thousands of lives in the process. ‘This is proven technology that works,’ Shailen Bhatt, head of the Federal Highway Administration, said at an event Friday to mark the release of the deployment plan for vehicle-to-everything, or V2X, technology across U.S. roads and highways. V2X allows cars and trucks to exchange location information with each other, and potentially cyclists and pedestrians, as well as with the roadway infrastructure itself. Users could send and receive frequent messages to and from each other, continuously sharing information about speed, position, and road conditions — even in situations with poor visibility, including around corners or in dense fog or heavy rain. ‘The roadway system is safer when all the vehicles are connected, and all the road users are connected,’ Bhatt said in an interview. Safety advocates say V2X technology could help prevent thousands of crashes a year, and also mitigate damage by lowering the speed of impact when crashes do occur. They hope that help will bring down the number of traffic fatalities in the U.S., which has climbed to more than 40,000 per year. ‘The plan is a vital first step towards realizing the full life-saving potential of this technology,’ said Jennifer Homendy, the chair of the National Transportation Safety Board.Homendy joined the press event virtually from Swanton, Ohio, where the NTSB is investigating a series of crashes involving multiple trucks on the Ohio Turnpike this week. V2X technology could potentially have prevented the crashes that killed four people and injured several more, she said. ‘V2X can help reverse the devastating public health crisis on our nation’s roads,’ Homendy said, ‘and fundamentally transform our nation’s transportation landscape.’ Despite enthusiasm from safety advocates and federal regulators, the technology has faced a bumpy rollout. During the Obama administration, the National Highway Traffic Safety Administration proposed making the technology mandatory on cars and light trucks. But the agency later dropped that idea during the Trump administration. The deployment of V2X has been 'hampered by regulatory uncertainty,' said John Bozzella, president and CEO of the Alliance for Automotive Innovation, a trade group that represents automakers. But he’s optimistic that the new plan will help. ‘This is the reset button,” Bozzella said at Friday’s announcement. 'This deployment plan is a big deal. It is a crucial piece of this V2X puzzle.’”  HPS Analysis: Readers might remember an initiative based in Europe but aimed at North America at the end of 2023 that was all about promoting V2X technology. It didn’t get much beyond the PR and trade publication article stage, and HPS was trying to find ways to support this initiative at the spring CABDA shows when it just seemed to evaporate, although the technology has been widespread in Europe, with the full support of the automotive industry for a decade or more. Now the U.S. Department of Transportation (DOT) has tabled a plan in the short-term that aims to have V2X infrastructure in place on 20 percent of the National Highway System by 2028, and for 25 percent of the nation’s largest metro areas to have V2X enabled at signalized intersections. For those of you that aren’t familiar with the technology, V2X stands for “Vehicle-to-Everything” and is a wireless communication technology that allows vehicles to exchange data with other vehicles, pedestrians, and infrastructure. V2X is intended to improve road safety, traffic efficiency, and reduce pollution. In Europe it is allowing motor vehicles, including cars and trucks, to communicate with all forms of micromobility, including bicycles, e-bikes and e-scooters, letting both vehicle drivers and riders know when they are close to each other and in the case of vehicles, enables braking to avoid collisions and accidents. V2X also enables communication between vehicles and roadways and roadway infrastructure. V2X technology has been demonstrated at two or more PeopleForBikes events that HPS is aware of, and given this new initiative and plan by DOT, we expect it will be demonstrated and the subject of seminars, presentations and webinars going forward. This technology is proven to save lives and prevent vehicle-related accidents and injuries, and accordingly we expect it to be embraced and supported by all aspects of the bicycle business and industry in North America.

08-20-24: “Fewer teens want to drive. It’s changing how they spend.” The Wall Street Journal: “Young drivers point to high prices for cars and insurance, combined with other viable options, from public transportation to rides from mom and dad. Driving a car, long a symbol of true independence, is now more expensive and complicated than it’s worth for many young Americans. This changed view on driving for teens and 20-somethings is manifesting itself in everything from a decline in car purchases to fewer road trips with friends. They say they’re often comfortable relying on public transportation, walking or having a family member give them a lift and saving money along the way. The percentage of 19-year-olds with a driver’s license dropped steadily from 87.3 percent in 1983 to 68.7 percent in 2022, according to most recent data from the Federal Highway Administration. Those who decide to own a car must contend with large jumps in costs, says Breanne Armstrong, director of insurance intelligence at research firm J.D. Power. Prices for cars, car parts and insurance have all risen in the past few years.” HPS Analysis: This is a demographic change that is positively significant for the American bicycle business. When I came of age in the 1950’s I was expected to get a drivers license, and there were high school drivers ed classes to implement this expectation, and my parents supported me in getting my license, including driving the family car until I could afford my own. My grandchildren, on the other hand, have been much more reluctant and slower to get a drivers license and own a car. We happened to live in the country, two miles from the nearest town and six miles from the nearest city with shopping and schools. There is no public transportation, but my younger grandchildren and some of their friends still are reluctant to get a license and even more reluctant to own a car (yes, they borrow mine). We are talking Gen Z born from 2000 forward who are the young generation of bicycle (including e-bike) riders and purchasers that the bicycle business, including bike shop,s need to get their heads and arms around. These are small-screen addicts that grandfathers like me turn to when they need help with a computer or smart phone. This is also another reason why the bike business needs to work hard at getting more kids on bikes.

08-20-24: “Grassroots outdoor alliance names new officers, members to board of directors.” Bicycle Retailer and Industry News: “Grassroots Outdoor Alliance, the national organization dedicated to the health and growth of specialty outdoor retail, recently elected a new slate of officers and welcomed three new board members. The board — which reflects the geographic and market diversity served by its retailers — contributes significantly to the strategic work of Grassroots Outdoor Alliance. Alongside the President, the board will continue to direct Grassroots in its mission to serve as a catalyst for the success of independent specialty outdoor retail through advocacy, education, knowledge sharing and community building.” “Board members were elected at the Annual Shareholders Meeting of Grassroots during the recent Connect Show in June. The show saw record attendance with 144 participating brands at Connect, 108 brands at Discovery Marketplace, and 146 attending independent outdoor retail stores.” “Grassroots Outdoor Alliance is a retailer-owned network of 95 independently owned outdoor retailers and 66 vendor partners, working together for the health and growth of specialty outdoor retail. Through data collection and analysis, direct member support, specialty events and deep vendor partnerships, Grassroots Outdoor Alliance is creating both a vision and roadmap for the long-term success of independent specialty retail. Grassroots Outdoor Alliance is recognized as a catalyst for the success of its retailers and vendor partners; an advocate for specialty independent retail; a promoter of education and community within the specialty channel; and a key influencer of the national outdoor industry. Grassroots Outdoor Alliance also operates Connect, a twice-annual legacy show experience that spans four days, offering an efficient and structured format for retailers to conduct pre-season line showings and business conversations.” HPS Analysis: The Grassroots Outdoor Alliance consisting of 95 independently owned outdoor retailers and 66 vendor partners are important because they are the core of the Specialty Outdoor channel of trade for bicycles, along with REI, which is a consumer-owned cooperative. The Grassroots Outdoor Alliance, on the other hand, is a retailer-owned buying group, which is the other reason HPS thinks it is important. The Grassroots Outdoor Alliance understands the power of data and collects, analyses and publishes data to its members and its vendor partners. This is another example of the power of retailers working together in a trade association like the NBDA.

08-21-24: “U.S. added 818,000 fewer jobs than reported earlier.” The New York Times: “The U.S. economy added far fewer jobs in 2023 and early 2024 than previously reported, a sign that cracks in the labor market are more severe — and began forming earlier than initially believed. On Wednesday, the Labor Department said that monthly payroll figures overstated job growth by roughly 818,000 in the 12 months that ended in March. That suggests employers added about 174,000 jobs per month during that period, down from the previously reported pace of about 242,000 jobs, a downward revision of about 28 percent. The revisions, which are preliminary, are part of an annual process in which monthly estimates, based on surveys, are reconciled with more accurate but less timely records from state unemployment offices. The new figures, once finalized, will be incorporated into official government employment statistics early next year.The updated numbers are the latest sign of vulnerability in the job market, which until recently had appeared rock solid despite months of high interest rates and economists’ warnings of an impending recession. More recent data, which wasn’t affected by the revisions, suggest job growth slowed further in the spring and summer, and the unemployment rate, though still relatively low at 4.3 percent, has been gradually rising.” “This year’s revision was unusually large. Over the previous decade, the annual updates had added or subtracted an average of about 173,000 jobs to each year’s total. Still, substantial updates are hardly without precedent. Job growth for the year ending March 2019, for example, was revised down by 489,000, or about 20 percent. Even accounting for the new estimates, the big picture remains relatively unchanged: Job growth is slowing, but not collapsing. The unemployment rate is rising, but layoffs remain low. The revisions to some extent help bring the job growth numbers in line with other data showing a more significant cooling in the labor market. Job openings, hiring and employee turnover have all slowed significantly over the past two years. The robust monthly payroll figures were something of an outlier.” HPS Analysis:   The over-count of 818,000 fewer jobs is a big miss. It is to the credit of the robust U.S. economy that the magnitude of this overstatement still wasn’t enough to send job growth off the rails or significantly drive-up unemployment. Wall Street did panic, but as we have seen, more than recovered by mid-month when traders bought into the dip. Job openings, hiring and employee turnover have all slowed significantly over the last two years as the Fed has intended in its fight against inflation, and the U.S. economy is headed toward a soft if somewhat bumpy landing, somewhat dependent on the size of the September rate cuts.

08-21-24: “Market still in doubt in run up to Taichung Bike Week.” BIKE europe: “The annual event for product managers, the Taichung Bike Week will open its doors again from 24-27 September. The event's relevance has changed significantly, after Eurobike decided to move to the June/July window. The big question this year is whether the market is ready again for this sourcing event. ‘Taichung Bike Week highlights post-inventory clearance opportunities’ headed a statement sent by one of the communicators around the event. It clearly marks the current situation in the bicycle industry. The bicycle brands are still struggling with high inventory and do everything within their reach to clear their warehouses. Spring sales in Europe have been good but certainly not enough to make a difference, and the first reports on the North American market show a similar development. For as long as that situation has not been resolved for bicycle brands, sourcing new components will be at a low level. How difficult the situation is was illustrated by a report in the Taiwanese media yesterday. This stated that a bicycle parts maker had placed about 100 people on furlough within a 15-day period, due to a drop in export orders. It was not the first time that the employer reported a furlough program. It is overall expected that 2025 will bring relief for the industry, meaning that sourcing managers will mainly focus on their 2026 and 2027 product portfolio during their attendance at Taichung Bike Week. HPS Analysis:  The multi-discipline buying teams that Schwinn traveled to Taiwan and later China from 1979 through 1990, were at the forefront of what became Taichung Bike Week in the 2000’s after Americans and Europeans populated the buying and product offices established by the major brands in Taiwan, and specifically Taichung, to be close to the headquarters of the OEM’s and component manufacturers, many of whom had established factories in mainland China. This BIKE europe article is correct in saying that very few people outside the global bicycle industry even know about Taichung Bike Week, much less attend. As this article indicates, Taichung Bike Week is a unique opportunity to take the current pulse of the bicycle industry and business, and get a good idea of what the coming year looks like from a business standpoint. In simple terms the Europeans and Americans “sell” and the Taiwanese and Chinese “manufacture” what their customers, the Europeans and Americans, want. Over decades this relationship has evolved into a pattern and rhythm of doing business that brings the customers to Taichung toward the end of the current season to confirm what the manufactures’ plan to make for the next season. Taichung is the epicenter because a large percentage of the Chinese manufacturing infrastructure is owned and controlled by the Taiwanese. The abandonment of the Just-In-Time system during the pandemic created a massive inventory glut throughout every nook and cranny of the bicycle-e-bike manufacturing infrastructure, and this article makes it clear that it is still going to take more time to clear this old inventory and make room for the new. Taichung Bike Week is the final step in the European and North American buying process, and what is cast there will determine the flow of product during the coming season. 

08-22-24: “Why China is starting a new trade war.” The Wall Street Journal: “Faced with stagnating growth, Xi Jinping decided to go all in on manufacturing, and much of that production is destined for export. China is cranking up its massive export machine again, and this time there’s nowhere for competitors to hide. A Massachusetts startup called CubicPV bet on silicon wafers, a high-tech component in solar panels. Buoyed by President Biden’s climate legislation enacted two years ago, with billions of dollars in tax credits and government loans, CubicPV announced plans in late 2022 for a $1.4 billion wafer plant in Texas. Since then, China has nearly doubled its output of silicon wafers, way more than it needs. The extra wafers had to go somewhere, and they went overseas, pushing prices down by 70 percent. CubicPV had to halt its production plan early this year, putting engineers and other employees out of work, citing ‘a distorted market as a result of China’s overcapacity.’ Thousands of miles away, in Chile, iron ore miner and steelmaker CAP is grappling with Beijing’s continued commitment to low-end commodity manufacturing, as an onslaught of cheap Chinese metal hits its shores. The firm said this month that it would shutter its giant Huachipato steel mill in central Chile indefinitely, with the loss of some 2,200 jobs. The company said it can’t compete with low-price Chinese metal even after the government raised tariffs on steel bars and other imported products. Beijing’s solution to a weak Chinese economy, putting the country’s factory sector on steroids, is squeezing businesses around the world and raising the specter of a new global trade war. The European Union’s recent decision to impose tariffs on imported Chinese electric vehicles is only the latest sign of deepening tensions. The U.S. earlier this year hiked levies on Chinese steel, aluminum, EVs, solar cells and other products. Turkey has jacked up duties on Chinese EVs, while Pakistan raised tariffs on Chinese stationery and rubber. Behind it all is a bold but risky calculation by Beijing that investing more in manufacturing can restore the country’s economic vitality and build up its industrial resilience without triggering so much international pushback that it threatens China’s future.” HPS Analysis: The answer to the question of “why” is as simple as the President of China, Xi Jinping believes U.S. style consumer consumption is wasteful, and that leaves China with few options other than investing in exports to stabilize its weakened economy and create jobs to make up for losses in domestic construction.  The result is that rather than Chinese workers losing their jobs, steelworkers in Brazil, chemical engineers in Europe, and solar panel makers in the U.S. may lose theirs. Xi Jinping ordered officials to double down on the country’s state-led manufacturing model, with billions of dollars in fresh subsidies and credit. He used a slogan to make sure officials got the message: “Establish the new before breaking the old,” or xian li hou po in Chinese. HPS believes this slogan will apply to the bicycle-e-bike manufacturing capacity and exports, just as it has been applied to lithium-ion batteries, creating additional pressure on four of the six American channels of trade and their brand suppliers, some of whom may get caught up Chinese government investment in manufacturing.

08-23-24: “As cars and trucks get bigger and taller, lawmakers look to protect pedestrians.” National Public Radio npr: “In a cavernous white room full of bright lights, video cameras and microphones, a driverless cart hurtles at 37 miles per hour into the side of a large SUV. Researchers at the Insurance Institute for Highway Safety have crash-tested thousands of cars and trucks like this one over the past three decades at their facility in central Virginia. But a few years ago, they noticed that those vehicles were getting bigger and heavier. So they decided to make the cart that crashes into them larger, too. ‘It was meant to represent a small pickup or a midsize SUV, and those vehicles have gotten heavier and heavier over time,’ says Becky Mueller, a senior research engineer at IIHS. ‘So it's 500 kilograms more weight because that's what the vehicle fleet now reflects. ’Americans’ cars and trucks are getting bigger and taller, while roadway fatalities have also climbed sharply over the past decade. Now lawmakers in Congress are expected to introduce a bill on Friday that would require federal standards for hood height and visibility to protect pedestrians and other vulnerable road users. ‘We've seen these standards over time improve vehicle safety with a focus on the people in the vehicle,’ said Rep. Mary Gay Scanlon (D-Pa.), a co-sponsor of the Pedestrian Protection Act, in an interview with NPR. ‘But this would sort of expand that to pedestrians, bicyclists and people outside the vehicle. ’Bigger and taller vehicles are more dangerous for pedestrians, according to an IIHS study of real-world crashes. Vehicles with higher front ends and blunt profiles are 45 percent more likely to cause fatalities in crashes with pedestrians than smaller cars and trucks, researchers found. Safety advocates say that’s a big reason why annual pedestrian deaths in the U.S. are up more than 75 percent since reaching their lowest point in 2009. ‘Pedestrians that are hit by trucks or SUVs are more likely to be killed,’ said Angie Schmitt, the author of Right of Way: Race, Class, and the Silent Epidemic of Pedestrian Deaths in America.” HPS Analysis: You might recall our pointing out the League of American Bicyclists (LAB) having been very disappointed in the Department of Transportations’ (DOT) National Highway Traffic Safety Administration (NHTSA) for not updating its manual for traffic engineers to include just what Representative Scanlon is proposing in the Pedestrian Protection Act she has introduced and put into the “hopper.” This legislation, combined with DOT “pressing the rest button” on an implementation plan for V2X technology will result in a reduction in bicycling accidents, injuries and fatalities over the next decade, which in turn will be catalysts to get more Americans on micromobility devices including bicycles.

08-23-24: “Fed’s Powell declares ‘time has come’ for rate cuts.” The Wall Street Journal: “Federal Reserve Chair Jerome Powell gave his strongest signal yet that interest-rate cuts are coming soon, saying the central bank intends to act to stave off a further weakening of the U.S. labor market. ‘We do not seek or welcome further cooling in labor market conditions,’ Powell said in a speech at the central bank’s annual gathering in the Grand Teton National Park on Friday. ‘The time has come for policy to adjust.' Investors had already been expecting a rate cut in September, but markets still reacted to Powell’s words. Stock indexes rose, with the Dow Jones Industrial Average adding more than 400 points, or about 1.1 percent. The Nasdaq Composite zipped up 1.5 percent. Treasury yields slipped. Powell’s comments Friday all but bring to a conclusion the Fed’s historic inflation-fighting campaign, one that Powell amplified from the same stage two years ago when he signaled his readiness to accept a recession as the price of lowering inflation. ‘Chair Powell’s Jackson Hole speech was as clear a pivot toward supporting the labor market as could be imagined,’ said Marc Sumerlin, managing partner at economic-consulting firm Evenflow Macro. Fed officials’ next policy meeting is scheduled for Sept. 17-18. They are widely expected to lower the benchmark federal-funds rate at that meeting.” HPS Analysis: Finally – the markets have jaw-boned for this all year, the economic stars have aligned, and Jerome Powell has finally said the magic words: “We do not seek or welcome further cooling in labor market conditions.” The question now is whether the rate cut will be a quarter-point or a half-point and we will have to wait and see. While the U.S. economy glides toward a soft landing, without a recession, the interest rate banks charge on loans and their having the liquidity to increase the number of loans they can take on is still out in the future for the bicycle business, like all businesses that will have to wait for the Fed’s rate cut to seep into the banking systems.

08-30-24: “An August Wall Street will want to remember.” Bloomberg: “Four weeks after a Wall Street mini-panic sent stocks spiraling (in a frenzy later dismissed by some as an ill-advised temper tantrum), this August will go down as a rare example of a late summer month brimming with confidence for the future. Levels of conviction are soaring across assets. In one example, exchange-traded funds tracking government debt, corporate credit and equities have now risen in unison for four straight months. It’s the longest stretch of correlated gains since at least 2007. Up 25 percent in the past 12 months, the S&P 500 has never climbed this much in the run-up to the first interest-rate cut of an easing cycle. So, is it to be a soft landing then? “Everything has to go right,” said Lindsay Rosner, head of multi-sector investing at Goldman Sachs Asset Management. “We need to continue to have trend or above-trend economic growth. We need to have a labor market that’s not too hot, not too cold. And that then would allow for the consumer to continue to consume. Those things all have to be in a perfect balance.” HPS Analysis: I am not sure there is such a thing as “perfect balance” anymore in the economy, or the American bicycle business. You have probably noted that I make a point of differentiating the “American” bicycle business from the rest of the world bicycle business. This is done because, as I have pointed out and you know, the American bicycle is different because it is import dependent, and that dependency has been on an ecosystem that is in flux and being buffeted by the most economically disruptive era since World War II. The American bicycle business ecosystem is tied to both the world economy and the American economy. The former affects supply and the later consumer demand, and they are separate and distinct. To understand the American bicycle business you need to keep one eye on the world economy and the attendant risk profile, and the other eye on the American economy and the attendant risk profile. Both risk profiles include environmental and geopolitical risks that make August 2024 a month to be remembered, among what HPS predicts will be more months to remember, some good, some not so good,for the American bicycle business.

Contact me with comments or your questions: jay@humanpoweredsolutions.com.