😰 It's a hard year

Plus: Americans keep shopping | Thursday, February 17, 2022

Open in app View in browser     Axios Markets By Emily Peck and Matt Phillips ·Feb 17, 2022 😎 Hi everyone, it's Thursday and we've almost made it through the week, but what about the coming "vibe shift"? Who can say? Today's newsletter is 1,012 words, 4 minutes. ↕️ We have a mixed bag below: CEOs are struggling and the auto industry is still playing catch-up. Americans overall — they're shopping.     1 big thing: CEOs' toughest year Illustration: Sarah Grillo/Axios   2022 is shaping up to be one of the hardest years ever to run a company — even harder than 2020, when the pandemic first hit, corporate leaders and analysts tell Emily and Axios' Erica Pandey. Why it matters: Uncertainty, CEOs' dreaded nemesis, abounds. Supply chain snarls, lingering COVID disruptions, labor shortages, inflation, rising pay and soaring demands for new benefits and work flexibility are driving up costs and complexity. Toss in a surge in individuals starting their own small businesses — and others simply quitting work altogether — and you see why C-suite anxiety is spreading fast. What they're saying: "After two years of them sitting at home getting well-paid, seeing their stock appreciate — yeah, this year is going to be more challenging," says Lisa Shalett, CIO of Morgan Stanley Wealth Management. "They're struggling to find their way," particularly around workforce challenges, said Ted Bililies, managing director at AlixPartners, who works with CEOs and boards. The Great Resignation is forcing companies to raise wages and beef up benefits to try to attract talent. Less-sexy industries, like manufacturing and autos, are having an even harder time attracting talent, Bililies said. Yes, but: Plenty of companies, especially the big ones, have been able to pass those higher costs, and a bit more, on to consumers who keep spending. Profit margins in 2021 were at historic highs. And even though doing business is harder now, many CEOs are paid millions of dollars to deal with this stress. Smaller businesses, however, face different challenges. They don't always have the resources to raise wages — child care centers, already operating on razor-thin margins, are struggling to find workers and aren't necessarily able to raise pay. Inflation and supply chain issues are driving up the cost of doing business. The year-over-year change in costs for companies on the S&P 500 is at 13.4%, the highest it's been in a decade, according to research Shalett released earlier this week. "In my 24 years in the business I've never seen anything like it, not even close," Heineken CEO Dolf van den Brink told the FT yesterday, about inflation. "Across the board, we are faced with crazy increases." Firms are also realizing they'll have to navigate remote and hybrid work even after the pandemic. That means figuring out new ways to manage teams and rally employees. The bottom line: 72% of CEOs worry their jobs aren't going to survive the challenges ahead, according to a survey AlixPartners released at the end of 2021. That number is up from 52% the year before. Go deeper.     2. Catch up quick 💸 Female executives made 25% less than men at S&P 500 companies, the widest gap since 2012. (Bloomberg) 🗄 Investors push public companies to publish substantive statistics on their employees. (WSJ) 🏘 Miami is now the least affordable city in the U.S., beating Los Angeles and New York City, per a new ranking. (TheRealDeal) ⚠️ U.S. says Russia's claims of troop withdrawal were "false." (Axios)     3. Auto supply chain still sputtering Data: FactSet; Chart: Baidi Wang/Axios To get inflation under control, auto assembly lines have to run full-throttle. And despite some positive data points, things still seem to be sputtering, Matt writes. Driving the news: On the plus side, inventories of cars and parts surged 6.9% in December — the biggest jump on record — following a couple of months of revving car production, the Census Bureau reported yesterday. Why it matters: Vehicle prices — both new and used — are big drivers of inflation, thanks to a computer chip shortage that crimped car production over the last year. Used car and truck prices were up 40.5% over the last year, the second-largest contributor to January's hot inflation reading. Yes, but: Even with the recent rise in inventories, there are signs that the auto supply chain is still under strain. Auto production stats released yesterday showed output actually fell slightly in January, likely due to Omicron-related disruptions. That was the second straight month production slipped. Chicanery from Canadian truckers blocking a bridge to Detroit also hamstrung automakers in February. What they're saying: "The recent surge in inventory accumulation probably has not been sustained," wrote Ian Shepherdson, of Pantheon Macroeconomics, in a client note yesterday. The bottom line: It's good that car inventories rose late last year, but don't expect prices to ease until there's a far more reliable supply.     A message from Axios The AI-powered tool transforming communications     Axios HQ is an easy-to-use tool helping 200+ organizations communicate with more clarity and efficiency. Join us Feb. 24 for an inside look — at the tool, templates, and AI-powered tech — that help companies like Edelman and Takeda keep stakeholders informed and productive.     4. Fed stresses "flexibility" Federal Reserve headquarters in Washington. Photo by Olivier Douliery/AFP via Getty Images   Minutes from the Federal Reserve policy-setting committee's last meeting show the degree to which leaders are already on board with steeper, more rapid rate increases than any in recent history — and would speed those plans up further if inflation continues at its scorching pace, Axios' Neil Irwin writes. Why it matters: The central bankers already signaled at their January meeting that they intend to raise interest rates when they gather again in March. But a whole lot has happened since then to heighten the odds that next month's hike might be a whopping half-percentage point — which hasn't happened since 2000. For instance, we've learned that job creation was exceptionally strong in January, that wages were rising rapidly — and that both consumer and producer price indexes also continue to soar. State of play: The officials stressed the importance of "maintaining flexibility" to adjust policy "on the basis of risk-management considerations" as a guiding principle in a highly-uncertain environment. And "a number" of Fed leaders accelerated their timetable for shrinking the central bank's $9 trillion balance sheet, now expecting to do so later this year. The bottom line: The new minutes cover a meeting that was only three weeks ago, but it feels like three years given the rush of market-moving economic news since then. Go deeper.   Share Axios and earn rewards If you like this newsletter, your friends may, too! Refer your friends and get free Axios swag when they sign up. Be a good friend and share   5. January retail sales come in strong Data: FactSet; Chart: Thomas Oide/Axios American consumers can't stop, won't stop, Matt writes. Driving the news: Last month's retail sales trounced expectations, rising 3.8% (economists expected 1.8%). That's after a drop of 2.5% in December as media coverage (ahem) of supply chain snarls ensured consumers shopped early for the holidays. Yes, but: Part of January's spending jump is because of inflation — prices rose 0.6%. The bottom line: Consumption is 68% of the economy and Americans are still spending — inflation and Omicron be damned.     A message from Axios The AI-powered tool transforming communications     Axios HQ is an easy-to-use tool helping 200+ organizations communicate with more clarity and efficiency. Join us Feb. 24 for an inside look — at the tool, templates, and AI-powered tech — that help companies like Edelman and Takeda keep stakeholders informed and productive.   Like this email style and format? Bring the strength of Smart Brevity® to your team — more effective communications, powered by Axios HQ.   Axios thanks our partners for supporting our newsletters. If you're interested in advertising, learn more here. Sponsorship has no influence on editorial content. 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