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    Rite Aid lost more than $1 billion in months before bankruptcy filing

    Drugstore chain Rite Aid revealed it lost more than $1 billion in the months before it filed for bankruptcy.
    The company issued a warning to investors that said it may not be able to keep its business running.
    Rite Aid has struggled to compete with its larger and better-funded rivals and has also faced a slew of litigation related to the opioid epidemic.

    A Rite Aid store in Kingston, New York, on May 15, 2023.
    Angus Mordant | Bloomberg | Getty Images

    Rite Aid lost more than $1 billion in the months before it filed for bankruptcy, the failed drugstore chain revealed in a Wednesday regulatory filing, as it warned investors it may not be able to keep its business running.
    The warning, which came three days after Rite Aid filed for bankruptcy protection, was contained in a late quarterly filing that showed the company racked up more losses in the 13 weeks ending Sept. 2 than it did during its entire previous fiscal year. 

    During the quarter, Rite Aid posted $5.65 billion in revenue and a net loss of $1.02 billion, compared with $5.9 billion in sales and a net loss of $331 million in the year-ago period. 
    Rite Aid’s cost of goods sold and its selling, general and administrative expenses were in line with prior quarters. But its interest expense ballooned to $72.7 million, up from $52.5 million in the year-ago period.  The company also took $310.8 million in facility exit and impairment charges, which largely came from asset write-offs at locations the company plans to close or relocate, the filing says. 
    The drugstore has spent the past several years buckling under the weight of slowing sales, long-term debt and lawsuits alleging it oversupplied painkillers and contributed to the nation’s opioid epidemic. 
    On Sunday, it filed for bankruptcy protection in New Jersey after a “confluence of operational and financial factors” left it with no other choice, court filings state. 
    Rite Aid has about $4 billion in debt and pays about $200 million in interest annually, court records say. With about $93 million in cash as of Sept 2., those payments have left Rite Aid unable to execute its turnaround strategy.

    The company is also too small to compete against its better-funded rivals CVS and Walgreens, which have both been leaning into health-care models as Rite Aid stayed true to its pharmacy and retail focus. 
    Rite Aid warned its store footprint will get even slimmer with plans to close underperforming stores as part of the bankruptcy. It has sought court approval to close at least 154 stores in the near term and said more could come down the line.Don’t miss these CNBC PRO stories: More

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    Fed Chair Powell to deliver key speech Thursday. Here’s what to expect

    Federal Reserve Chair Jerome Powell is set to deliver what could be a key policy address Thursday afternoon in New York.
    “Higher for longer” on rates has become an unofficial mantra in recent days, and Powell is expected to join the chorus.
    Markets largely expect the Fed to stay on hold with rates, but they will be looking to Powell for confirmation and clarification.

    U.S. Federal Reserve Chair Jerome Powell holds a press conference after the release of the Fed policy decision to leave interest rates unchanged, at the Federal Reserve in Washington, D.C., on Sept. 20, 2023.
    Evelyn Hockstein | Reuters

    Federal Reserve Chair Jerome Powell is set to deliver what could be a key policy address Thursday, in which he will be tasked with convincing markets the central bank is committed to keep hammering away at inflation, but perhaps now needs a little less force.
    The top monetary policymaker will speak at noon ET to the Economic Club of New York at a critical time for the U.S. economy.

    Inflation numbers have been improving lately, but Treasury yields have been surging, sending conflicting messages about where monetary policy might be headed. Markets largely expect the Fed to stay on hold with rates, but they will be looking to Powell for confirmation and clarification on how officials view both current conditions and longer-term trends.
    “Powell is always tacking back to whatever helps feed the narrative that they need to stay vigilant, and for understandable reasons,” said Luke Tilley, chief economist at Wilmington Trust. “I just expect him to keep talking about the strength of the economy and the surprising strength of the consumer in the third quarter as a risk for inflation. That is enough ammunition to keep talking about staying vigilant.”
    Essentially, Tilley expects the Powell message to break into three parts: The Fed needed to get rates high quickly, which it did; that it had to find a peak level, which is part of the current debate; and that it needs to figure out how long rates need to stay this high to get inflation back to its 2% target.
    “Really, their ultimate goal is to keep financial conditions tight so inflation comes down,” he said. “He’s going to use that framework, even if he’s dovish about Nov. 1 (the next Fed rate decision) or December to shift the hawkishness to that third question of how long to keep them this high.”

    “Higher for longer” has become an unofficial mantra in recent days, with Philadelphia Fed President Patrick Harker earlier this week mentioning the term specifically for how he feels about policy.

    Harker was one of several Fed officials, including governors Philip Jefferson, who spoke earlier this month, and Christopher Waller, who spoke Wednesday, to advocate holding off on rate hikes at least in the immediate future while they weigh the effects of incoming data. Waller said the Fed can “wait, watch and see” before it moves on rates.
    Powell is expected to join the chorus Thursday, even if his message is filled with caveats about not becoming complacent in the fight against inflation.
    “Powell has to present himself to investors as the dispassionate neutral leader and allow [others] to be more aggressive,” said Jeffrey Roach, chief economist for LPL Financial. “They’re not going to declare victory, and that is one reason why Powell is going to continue to talk somewhat hawkish.”
    To that point, New York Fed President John Williams on Wednesday moved some of the way there, when he repeated another familiar mantra, that the Fed will have to keep the “restrictive stance of policy in place for some time” to deal with inflation, according to a Reuters report.
    Similar to the other speakers, Powell likely will reiterate a data-dependent focus for the Fed after a much more aggressive path in which it has raised its benchmark borrowing rate 11 times for a total of 5.25 percentage points, its highest level in 22 years. The Fed opted not to hike in September.
    He also, though, will be looked to for some guidance as to how he feels about rising yields, in light of the 10-year Treasury having inched closer to 5%, its highest point in 16 years.
    The chair “will stick to the message … that the data has been coming in stronger than expected, but there has also been a big move in yields, which has tightened financial conditions, so no urgency for a policy response in November and the Fed can adopt a wait-and-see approach,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said in a client note.
    Guha said that a Fed on hold now will only be a “down payment” on “extra cuts” in rates for 2024 as inflation and economic growth both weaken.Don’t miss these CNBC PRO stories: More

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    Bad news for commercial real estate: Architects report a big drop in business

    Architecture firms reported a sharp drop in business in September, indicating that the commercial real estate market could experience more pain soon.
    Commercial real estate has been hit with a double whammy: Return to office is slow and interest rates are high.

    Construction workers erect a building in downtown Miami, Florida, on June 14, 2023. 
    Jim Watson | AFP | Getty Images

    Architecture firms reported a sharp drop in business in September, indicating that the commercial real estate market could experience even more pain in the next year.
    The AIA/Deltek Architecture Billings Index dropped to 44.8 in September, the lowest score since December 2020, during the height of the Covid-19 pandemic. Any score below 50 indicates worsening business conditions. The score shows a growing number of architecture firms are reporting a drop in billings.

    The index is a forward-looking indicator of demand for nonresidential construction activity — both commercial and industrial buildings. It aims to predict construction activity nine to 12 months out.
    “While more firms are reporting a decrease in billings, the report also shows the hesitance among clients to commit to new projects with a slump in newly signed design contracts,” said Kermit Baker, AIA’s chief economist. “As a result, backlogs at architecture firms fell to 6.5 months on average in the third quarter, their lowest level since the fourth quarter of 2021.”
    Commercial real estate has been hit with a double whammy. Return to office is slow, hitting both office buildings as well as the retail stores and restaurants that support them. Downtowns are suffering. But a sharp rise in interest rates has exacerbated the problem, causing investments and deal-making in most sectors to grind to a halt.
    While all regions of the country are experiencing a decline, the West is deepest, as the return to office there has been slower than in other areas. Among real estate sectors, firms with a multifamily residential focus saw more of a decline. Multifamily construction boomed over the past few years, with a record number of units now flooding the market and putting pressure on rents.
    Analysts, however, warn that the drop in apartment activity does not bode well for the future.

    “I’ll say again, we do need to absorb a lot of multifamily construction currently in place but after that, there won’t be much for a few years after,” said Peter Boockvar, chief investment officer at Bleakley Financial Group.Don’t miss these CNBC PRO stories: More

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    Trump’s Truth Social is promoting the Biden campaign’s new account

    Former President Donald Trump’s social media platform is promoting President Joe Biden’s campaign account on its site.
    As of Wednesday, Biden’s campaign had more followers than Trump’s campaign on Truth Social.
    Biden’s campaign joined Truth Social on Monday, with a post saying, “Well. Let’s see how this goes. Converts welcome!”

    U.S. President Joe Biden delivers remarks on the September Jobs Report at the White House in Washington, D.C., on Oct. 6, 2023.
    Kevin Dietsch | Getty Images

    Not a joke, folks.
    Former President Donald Trump’s social media company is promoting President Joe Biden’s campaign account on the platform, as the two politicians gear up for a possible election rematch.

    “Dear Friend, Recently, Joe Biden’s presidential campaign joined Truth Social. You can find their account @BidenHQ here,” Truth Social said in an email sent to users Wednesday.
    The email also noted that Trump’s campaign account is on Truth Social. As of Wednesday, Biden’s account has more followers than the Trump campaign’s, sitting at more than 22,000 followers, despite only joining the site Monday. Trump’s campaign account has gained 19,000 followers since its creation in February 2022.
    “Well. Let’s see how this goes. Converts welcome!” said @BidenHQ in its first post Monday. The account follows just one other account: the GOP former president’s personal account.
    Trump, who has 6.4 million followers himself on the site, uses his Truth Social feed as a platform to routinely attack Biden and others he perceives as enemies. Trump, who lost to Biden in 2020 and is the front-runner for the 2024 GOP nomination, has largely avoided using X, formerly known as Twitter, even after owner Elon Musk reinstated his account late last year. The service banned him from the site in early 2021 over his tweets regarding the violent, pro-Trump invasion of the Capitol on Jan. 6 that year.
    Truth Social, meanwhile, is still waiting to become part of a public company under Trump Media and Technology Group. Digital World Acquisition Corp., the special purpose acquisition company that intends to merge with Trump Media, has run into several difficulties, including accusations of fraud, while repeatedly delaying the business combination. Last week, DWAC said it would return the $533 million raised for the deal back to investors.

    The Biden account’s profile picture on Truth Social is a depiction of “Dark Brandon,” a meme generated by the president’s supporters in response to Trump backers turning “Let’s Go Brandon,” a misheard vulgar chant about Biden, into an insult. “Dark Brandon” merchandise has driven over half the Biden campaign’s online store revenue, CNBC reported earlier this year.
    Yet, despite Biden’s apparent popularity on Trump’s own social media platform, he faces a tough climb to reelection. Even as Trump contends with four criminal cases, polls show he’s very much in the running to return to the White House.
    CNBC’s All-America Economic Survey, which polled 1,001 adults over the phone during five days earlier this month, showed that Biden’s approval rating had fell to 37%. In a potential head-to-head matchup, Trump would top Biden 46% to 42%, according to the survey.Don’t miss these CNBC PRO stories: More

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    United Airlines will debut a new boarding order to save time

    United Airlines said in an internal memo that it will board economy passengers with window seats before those with middle and aisle seats beginning Oct. 26.
    The new boarding method will save up to two minutes of boarding time, United estimates.
    The change does not affect passengers in first class and business class, as well as the preboarding group.

    Passengers check in for United Airlines flights at O’Hare International Airport in Chicago on Dec. 13, 2022.
    Scott Olson | Getty Images

    United Airlines will change its boarding order next week by letting economy-class passengers who have selected window seats to board before those with middle and aisle seats.
    The company said the change could shave two minutes off the boarding process.

    The new procedure will begin Oct. 26, according to a company memo shared with CNBC. United said boarding times have increased up to two minutes since 2019.
    Airlines regularly tinker with boarding procedures to save precious time getting passengers onto planes, generally rewarding their biggest spenders with some of the earliest boarding. A departure delay because of chaotic boarding could cascade to further disruptions throughout the day if aircraft and travelers arrive late, especially at congested airports.
    United’s boarding process from preboarding — which includes travelers with disabilities, active duty members of the military, travelers with children under 2 years old and United’s top-tier elite frequent flyers — through Group 3 will remain the same, according to the memo.
    Beginning with Group 4, passengers with window seats will board first, followed by those with middle seats and then aisle seats. People on the same reservation, such as families, can board together, United said.
    The new boarding process will be implemented on all domestic flights and some international flights.

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    China’s economy may be growing faster, but big problems remain

    China’s emergence from its covid-19 controls was meant to be the biggest economic event of the year. Instead, the reopening has turned into one of the biggest disappointments. In a recent survey by Bank of America, fund managers in Asia expressed their “fatigue and frustration” with China’s weak growth and the lack of a concerted government response.On the face of it, economic data released on October 18th should cheer them up. The figures showed that China’s economy grew by 4.9% in the third quarter, compared with a year earlier—faster than expected. And its growth compared with the previous quarter was stronger still: 5.3% at an annualised rate. The economy should now have little trouble meeting the government’s growth target of “around 5%” for this year. ubs, a bank, raised its forecast for 2023 from 4.8% to 5.2%.The source of the growth was also encouraging. Consumption contributed almost 95% of it, noted Sheng Laiyun of China’s National Bureau of Statistics. There are signs that the country’s beleaguered households may be coming out of their shells. Demand for longer-term loans is growing; the saving rate, adjusted for the season, fell below 30% of disposable income for the first time since the pandemic, according to Yi Xiong of Deutsche Bank.One reason may be improvements in the job market. Urban unemployment fell to 5% in September from 5.2% in the previous month and the average workweek lengthened. Household debt burdens have also eased a little. China’s authorities have urged banks to cut the interest rate on outstanding mortgages in line with the lower rates available for new ones. On October 13th the central bank said that the interest rate on existing mortgages, worth 21.7trn yuan ($3trn), had been lowered by 0.73 percentage points, which should free up over 100bn yuan of spending power a year.But the good news for households was not matched by good news for houses. The property market remains dangerously weak. The amount of residential floorspace sold by property developers in September was 21% below that sold last year. Increasingly, China’s developers must actually finish buildings before they can sell them. Completed buildings accounted for almost a quarter of sales in September, compared with less than 13% in 2021.image: The EconomistThe threat of deflation lingers, too. China’s annual nominal growth, which includes inflation, was 3.5% in the third quarter, lower than the real, inflation-adjusted figure. This suggests that the prices of goods and services fell by almost 1.4%, the second drop in a row (see chart 1), resulting in China’s worst deflationary spell since 2009.Thus fatigue and frustration should not give way to complacency. At the imf’s annual meeting, Pierre-Olivier Gourinchas, the fund’s chief economist, called for “forceful action” from China’s government to restructure struggling property developers, contain financial dangers and redeploy fiscal measures to help households.The government has taken some steps. It has allowed a growing number of local governments to issue “refinancing bonds”, which will help clear late payments to suppliers and replace the more expensive debt owed by local-government financing vehicles. The authorities seem keen to prevent one of these vehicles defaulting.But preserving financial stability is not the same as reviving growth. The government’s efforts to stimulate demand have so far been both piecemeal and grudging. Its fear of doing too much seems to outweigh its fear of doing too little. With the official growth target in sight, the government may now be tempted to wait and see how the recovery evolves before pursuing further stimulus. In the face of a hostile America and turbulent geopolitics, it appears keen to keep its fiscal powder dry.image: The EconomistStill, it is hard to see how deflation strengthens China’s position. The imf now thinks that China’s prices, as measured by its gdp deflator, will fall this year compared with last. Combined with the yuan’s weakness, gdp could shrink in dollar terms. Indeed, China’s economy will gain little ground on America’s in the next five years, according to the fund (see chart 2).The contrast with the imf’s April forecast is stark. In the space of six months, the fund has shorn off more than $15trn, in today’s dollars, from China’s cumulative gdp for the years from 2023 to 2028. Few economies can match China’s scale. And that includes the scale of its disappointments. ■ More

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    The 30-year fixed mortgage rate just hit 8% for the first time since 2000 as Treasury yields soar

    The average rate on the popular 30-year fixed mortgage rate hit 8% Wednesday morning.
    Yields on U.S. Treasurys are soaring.
    Higher mortgage rates have caused applications to plummet.

    JB Reed | Bloomberg | Getty Images

    The average rate on the popular 30-year fixed mortgage rate hit 8% Wednesday morning, according to Mortgage News Daily. That is the highest level since mid-2000.
    The milestone came as bond yields soar to levels not seen since 2007. Mortgage rates follow loosely the yield on the 10-year U.S. Treasury.

    Rates rose sharply this week and last week, as investors digest more reads on the economy. On Wednesday, it was housing starts, which rose in September, though not as much as expected, according to the U.S. Census Bureau.
    Building permits, an indicator of future construction, fell, but by a less than the expected amount. Last week, retail sales came in far higher than expected, creating more uncertainty over the Federal Reserve’s long-term plan.
    These higher rates have caused mortgage demand to plummet, as applications fell nearly 7% last week from the previous week, according to the Mortgage Bankers Association.
    “Here’s another milestone that seemed extreme several short months ago,” said Matthew Graham, chief operating officer of Mortgage News Daily. “The fact is that many borrowers have already seen rates over 8%. That said, many borrowers are still seeing rates in the 7s due to buydowns and discount points.”
    The homebuilders are using buydowns to help customers afford their homes. They do this through their mortgage subsidiaries.

    While they had used the financing tool very sparingly in the past, it is now the top incentive among builders, according to industry sources.
    “Although our mortgage company has been offering slightly below market rate loans most of this cycle (just to be competitive), the full point buydown for the 30-year life of the loan we’ve been referring to recently as a builder incentive is not something we had done in previous cycles, at least not on the broad, majority basis we are doing so today. You might have found it on select homes in the past on an extremely limited basis,” said a spokesperson from D.R. Horton, the nation’s largest homebuilder.
    The average rate on the 30-year fixed was as low as 3% just two years ago. To put it in perspective, a buyer purchasing a $400,000 home with a 20% down payment would have a monthly payment today of nearly $1,000 more than it would have been two years ago.Don’t miss these CNBC PRO stories: More

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    Want to see what weak discretionary spending looks like? See Winnebago’s results

    Winnebago reported earnings that topped expectations.
    Revenue, however, fell short, as the RV maker struggles with lax discretionary spending.
    It’s a problem for several sectors as inflation weighs on consumers.

    A Winnebago Industries Inc. travel trailer stands at Motor Sportsland RV dealership in Salt Lake City, Utah, U.S., on Monday, April 6, 2020.
    George Frey | Bloomberg | Getty Images

    Winnebago closed out its fiscal year with a solid fourth quarter earnings beat. Adjusted per-share profit of $1.59 easily topped Wall Street expectations thanks to the recreational-vehicle maker’s ability to efficiently manage costs, production and inventories in the quarter.
    But that masked a big problem for the company – weaker discretionary spending. It’s a challenge across several sectors, from blue jeans to pizza delivery, as high inflation saps consumers.

    The company on Wednesday also posted revenue of $771 million, a nearly 35% decline from a year ago. It fell short of Wall Street’s expected $784 million, as sales in its motorhome RV division significantly missed consensus views ($318 million vs. $355 million expected, according to StreetAccount).
    Winnebago blamed “lower unit sales related to current market conditions and dealer efforts to reduce inventories, and higher discounts and allowances.” Unit deliveries of motorhome RVs plunged 52% year-over year.
    Price increases weren’t nearly enough to overcome the weak demand.
    CEO Michael Happe said “the consumer market continues to be challenged, and our fourth quarter results reflect a stubborn retail environment.”
    While the company didn’t give financial guidance, Happe said he expects those trends to continue into the first half of the new fiscal year. By the second half of the fiscal year, though, Happe is optimistic that inventories will normalize and consumer demand will stabilize.
    Winnebago’s stock, which was down 3% Wednesday, had fallen about 13% over the last three months, far underperforming the broader market. Rival Thor Industries had also fallen about 17% in that same timespan – a reflection of the challenging demand conditions across the industry. More