🎙️ Quiet Cutting

Happy 93rd birthday to the Oracle of Omaha, Warren Buffett 🎉

He’s probably celebrating with a Coca-Cola and a pile of 10Ks as shares of his Berkshire Hathaway sit near all-time highs.

“Someone’s sitting in the shade today because someone planted a tree a long time ago,” he once said.

💭 Berkshire isn’t the only company performing well: Believe it or not, S&P 500 profit margins expanded to 11.9% last quarter, the highest since early 2022 and way above the historical average.

— Weronika, Shawn, and Matthew

Here’s the rundown:

Today, we'll discuss the three biggest stories in markets:

• How companies are ‘quiet cutting’

• Intel about peak shipping season in the U.S.

• Why some Americans are skipping meals to save money

All this, and more, in just 5 minutes to read.

CHART OF THE DAY

IN THE NEWS

💼 The Employers That Are 'Quiet Cutting’ (CBS)

We’ve all heard of “quiet quitting” — when employees put in enough effort to keep their jobs without doing anything more.

Now, there’s a new phenomenon called “quiet cutting,” in which employers cut jobs and trim costs without laying anybody off. The trend is gaining traction after companies like Adidas, Adobe, IBM, and Salesforce have restructured their workforce in a way that saves them money.

• Basically, “quiet cutting” means reassigning roles, usually landing workers in positions with titles that don’t sound as nice, for lower pay, with the same (or more) hours and responsibilities.
  

• Mentions of “reassignment” during earnings calls have more than tripled in the past year. Said one HR firm executive: “Reassigning is definitely a huge part of the dynamic right now.”

Wink, wink: Companies spend months, sometimes years, hiring and training workers, so they don’t necessarily want to lay off workers and then re-hire others if they don’t have to. An alternative is “reassignment,” which can be a fancy way of saying demotion.

• Sometimes, it’s a genuine move companies make to keep workers they like or value.
  

• As one executive coach commented, “They’re basically signaling to you: ‘Look, this is the only way for me to have a job here for you, I need to reassign you, so wink, wink, if I were you, I would take the assignment.”

Why it matters:

While the labor market remains strong, employers in struggling sectors such as manufacturing are “quiet cutting” more than other areas. They’re often reducing hours and pay rather than resorting to more aggressive job cuts.

Driving the trend: Consumers who spent disposable income on things like home improvement during the pandemic have transferred their spending to services such as travel and leisure. U.S. factory activity has contracted for the past nine months, while airlines report record demand and revenue.

• One economist summarized the whole situation well: “While business has slowed in some industries, employers are largely reluctant to let workers go out of fears that rehiring may be difficult when the economy reaccelerates.”

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🚢 U.S. Peak Shipping Season Is Coming (WSJ)

The peak season for supply chains is approaching, but it’s arriving with a whimper, offering little hope for a revival in freight demand.

Let’s talk logistics: Late summer through fall typically marks the high season for supply chains, as retailers scramble to get clothing, electronics, and holiday decorations to consumers — freight companies capitalize on the increased demand.

But this year's peak shipping season is proving lackluster as retailers and suppliers of consumer goods work to deplete surplus stock amassed during the COVID-19 pandemic.

• Meanwhile, logistics firms are grappling with subdued volume and freight rates significantly lower than last year's.

By the numbers: The volume of goods arriving at U.S. ports, which travel through trucking and rail systems to reach distribution centers and retail locations, has been underwhelming compared to 2022 levels.

• Weary of a looming recession, retail giants like Walmart, Target, and Home Depot indicate they've successfully reduced excess inventory but aren’t eager to flood the market with goods without definitive signs of consumer demand.

Logistics firms gauge shipping demand by assessing retailers’ inventory levels and the pace at which they plan to restock. In July, the Logistics Managers Index hit its lowest level in its six-and-a-half-year history.

Port slowdown: Peak shipping season is usually busiest at Southern California's ports of Los Angeles and Long Beach — major hubs for goods from Asia.

• Yet, this summer, import volumes at these ports fell more than 10% between June and July, reaching their lowest levels since December 2022.

Why it matters:

Down in the dumps: Freight leaders were optimistic that this year's peak season would mark a reversal following a year of tepid import volumes.

However, this summer's inbound trade has only seen modest growth, causing some ocean carriers to cancel trans-Pacific journeys and downgrade their 2023 projections.

• Vincent Clerc, the CEO of Moller-Maersk, one of Denmark's largest container-shipping companies, noted that retail and lifestyle shipments have declined by double digits compared to previous years.

Serve me, please: Americans are increasingly spending on services and experiences, such as vacations and dining, while cutting back on other goods.

• Major retailers like Walmart say customers are spending on essentials like groceries rather than the consumer products that typically drive peak-season shipping.

MORE HEADLINES

💊 U.S. Government announces first 10 drugs facing Medicare price negotiation

🍔 Burger King faces lawsuit over the size of the Whopper

🎶 T-Pain in your living room: Are virtual concerts the future of live entertainment?

🔻 Walmart cuts pharmacist pay & hours while workload piles up

 💬 The Bank of England’s bond losses are about to get worse

🍜 Poor Americans Skip Meals to Deal with Rising Food Prices (Bloomberg)

Inflation tends to disproportionately hurt lower-income families, and as pandemic-era stimulus and aid programs fall off, the most financially vulnerable Americans are increasingly strained.

As Bloomberg reports, a growing share of working-class Americans are behind on rent and struggling to afford food.

Going hungry: A new report assessing households using the Supplemental Nutrition Assistance Program (SNAP) revealed that 42% skipped meals in August, and 55% ate less, because of food unaffordability.

• SNAP beneficiaries are typically near or below the poverty line.

Breaking point: The data highlighted that these households were worse off than even just a month prior in July, with a rising share of low-income households failing even to pay their utility bills.

While we’ve written generally for months the U.S. economy has held up quite well despite higher interest rates, such resilience isn’t true across the board.

• As one analyst put it, “There’s a lot of hardship being experienced by people with lower incomes right now. We’ve seen a lot of cutbacks in safety net benefits this year, and we’re seeing the impact (of those cutbacks.)”

Why it matters:

While not as sharply as economists originally expected, the job market is cooling, accrued pandemic savings are winding down, and social support programs are expiring.

• As measured by the U.S. Census Bureau’s Household Pulse survey, consumer sentiment hit a three-month low in August, with the biggest drop-off in confidence among people making under $25,000.

Beginning in March, households in 32 states lost at least $95 in monthly food aid. Average statewide losses range between $151 and $214 per month:

Unwinding benefits: SNAP emergency allotments expired at the beginning of 2023, worsening food insecurity — The Urban Institute projects that such emergency Covid programs kept some 4.2 million people out of poverty.

• According to the Department of Agriculture, 12% of the U.S. population — about 41 million people — struggle with hunger.

• Nearly 17% of children don’t know where their next meal is coming from, with the highest hunger rates in New Mexico, Mississippi, and Louisiana.

See you next time!

That's it for today on We Study Markets!

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