The US labor market has fully recovered, benefiting the travel and shipping industries

As of last month, the U.S. labor market had fully recovered the number of jobs that were lost due to the pandemic in less than half the time it took after the previous downturn. A staggering 528,000 jobs were added in July, pushing the payroll total above the February 2020 level.

In this case, however, the good news could be bad, as the hit jobs report could prompt the Federal Reserve to tighten more aggressively than planned to cool growth. That could decisively trigger the recession that many market watchers believe we are already in, with real gross domestic product (GDP) contracting for two straight quarters, inflation near historic highs and the services sector shrinking.

In addition, US yields have reversed to their highest level since 2000. On Friday, the yield on the two-year government bond closed at 3.24%, on the 10-year at 2.83%, a difference of 41 basis points. Every recession in the last few decades has been preceded by an inversion of the yield curve, so we may be in the very late stages of the business cycle.

It will be interesting to see what Jay Powell & Co. decide to do. at the next meeting of the Federal Open Market Committee (FOMC), scheduled for September 20-21.

Americans are driving less, but lower fuel costs could be a game changer

Another sign that some parts of the economy may be slowing? Lower demand for fuel combined with falling gas prices. Data from the Energy Information Administration (EIA) show that Americans are consuming less gasoline per day this summer than they did in the summer of 2020, when almost everyone was stuck at home and overeating King Tiger on Netflix.

Gas prices above $5 a gallon seem to be a bigger deterrent to getting out of the house than fears of Covid and government-imposed lockdowns.

The reduction in driving activity is consistent with the results of a recent study conducted by the American Automobile Association (AAA). The nonprofit found that as many as 88 percent of Americans are driving less because of higher gas prices. Three-quarters of those surveyed said they were combining orders on every trip, while 56% said they were cutting back on shopping and eating out.

Interestingly, only 13% of people surveyed said they were driving a more fuel-efficient vehicle in response to the spike in gas prices; almost none, or 2% of respondents, say they are switching to an electric vehicle (EV).

The EIA will report last week’s fuel consumption data on Wednesday, and I expect to see demand jump back above 2020 levels now that gas prices have fallen for more than 50 straight days after topping the national average all-time high of $5.02 on June 14.

For many Americans, vacations will happen “no matter what”

Another recent survey by McKinsey & Co. found that many Americans are still planning a vacation this summer “no matter what,” even though inflation remains a top concern. Nearly 70% of respondents said they are taking a trip regardless of rising prices, Covid, a potential economic slowdown or other concerns.

That positive sentiment was echoed by Booking Holdings CEO Glen Vogel, who told CNBC this week that Americans “will continue to travel and will travel more and more over the long term.”

Vogel joined the network to discuss Booking’s incredible second quarter financial report. The online travel agency, which owns well-known brands such as Priceline, Kayak and OpenTable, recorded more overnight bookings in the three months ended June 20 than in any quarter of 2019, before the pandemic. Total revenue was $4.3 billion, nearly double the previous quarter, while net income was $857 million, compared to a net loss in the same quarter last year.

Looking ahead, Fogel expects record revenue in the third quarter, and bookings for the final quarter of the year are currently about 15% higher than the same period in 2019.

We’re bullish not only on Booking, but also on rivals Tripadvisor and Expedia, whose shares recovered their losses and then some as gas prices retreated from their all-time highs on June 14.

Shipping giant Maersk posted record results

In addition to consumers, lower gas costs benefit industries that consume large amounts of petroleum liquids. These include airlines and container shipping companies, the latter of which still faces worsening congestion at ports in North America, Europe and China, according to shipping giant AP Moller-Maersk.

The world’s second-largest shipping company is often seen as a barometer of the global shipping industry, and if that’s the case, Maersk’s second-quarter results should reassure investors. The Copenhagen-based company reported record revenue of $21.7 billion in the June quarter and net profit of $8.6 billion, also a new quarterly record.

Based on these impressive results, Maersk is raising its full-year guidance from $30 billion in EBITDA (earnings before interest, taxes, depreciation and amortization) to $37 billion. It also raised its free cash flow (FCF) estimate from $19 billion to “above” $24 billion. Maersk’s board of directors also increased the company’s share buyback program to $3 billion for the years 2022-2025, up from $2.5 billion previously.

Some financial news drew attention to the fact that Maersk moved 7.4% fewer containers in the second quarter compared to the same quarter last year, but as the company itself points out, this is due to increasing port congestion, not significant delay in demand. According to the Census Bureau, new orders for manufactured durable goods rose to $272.6 billion in June, a 2 percent increase from May. Shipments of manufactured goods have also increased in 13 of the past 14 months through June.

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