Business

ASKED ABOUT the state of the economy, Americans are surprisingly gloomy. More than half say they are experiencing financial hardship; more than a third say they are having difficulty paying for regular household expenses. Yet, even as surveys suggest that Americans are tightening their belts amid persistently high inflation, data show that they continue to spend at a healthy clip. Last month the Bureau of Economic Analysis reported that consumer spending is growing by 1.8% year on year after adjusting for inflation—not far from its historic average. A report by the Bank of America Institute, a think-tank, finds that consumer payments are growing at double digits, a sign that the American shopper “is still spending”. This resilience can be explained in part by mattress-loads of savings. Americans accumulated more than $2trn in excess savings during the pandemic, when the federal government doled out unemployment benefits and stimulus cheques even as households cut back on travel, entertainment and eating out. Although some of this has been spent, households are still sitting on a $1.4trn cushion, reckons Ian Shepherdson of Pantheon Macroeconomics, a consultancy. The labour market is healthy, too. Unemployment has fallen to 3.5%, the lowest it has been in 50 years. In August there were 10.1m job openings, or 1.7 vacancies for every jobless person. But another less-appreciated reason why spending has been so steady in the face of soaring inflation is a shift in consumers’ sensitivity to prices, or “price elasticity of demand”. This concept, seldom mentioned outside economics textbooks, has been a hot topic of debate among investors and company executives in the past year (see chart 1). The term has found its way to the earnings calls of consumer-goods giants such as PepsiCo, whose bosses talked of favourable “demand-elasticity trends” while presenting the food-and-drinks giant’s unexpectedly bubbly quarterly results on October 12th. The available data appear to back them up. Figures compiled by IRI, a market-research firm, suggest that consumers are indeed significantly less price sensitive now than they were before the pandemic. Using scanner data on prices and sales recorded with each purchase of thousands of items across more than 125,000 supermarkets, chemists, dollar stores and big-box retailers, IRI estimates that price elasticities have fallen for 22 out of 25 product categories since February 2020, and remained flat for the other three (see chart 2). All told, IRI reckons that consumers were roughly 20% less price sensitive in the 52-week period ending September 4th than they had been in the year before the pandemic. Why the shift? Experts offer three possible reasons. First, as panic-buying led to empty supermarket shelves in the early months of the pandemic, consumers adjusted their shopping routines and tried brands they weren’t used to, says Brett Gordon, a marketing professor at Northwestern University. With more time at home, people also became more comfortable splurging on pricier food and household items. Last, consumers cut the time they spent shopping—by roughly 9% between 2019 and 2021 according to government statistics. The way they use that has changed, too. “A lot of people maybe spent more time shopping for things to outfit their homes, but less time worrying about everyday consumer products,” says Alexander MacKay of Harvard Business School. There are some signs that consumers are starting to pull back. Walmart, a retailing behemoth, says that its shoppers are switching from pricey deli meats to hot dogs, and from gallons (3.8 litres) of milk to half-gallons. Best Buy, an electronics retailer, says its customers are increasingly opting for private-label tvs over name-brand sets. Such shifts in consumer behaviour are most pronounced among lower-income households. tjx, a discount department store, says that, for the first time in years, outlets in higher-income areas are growing faster than those in lower-income ones. “Middle-income and high-income consumers are continuing to spend,” explains Krishnakumar Davey of IRI, but “low-income stores and low-income consumers are pulling back a little bit.” This will be on the minds of investors as America’s listed companies report their quarterly earnings in the coming weeks. Those hoping for clear answers may be disappointed. Although packaged-goods firms agree that shoppers will start to balk at higher prices, there is far less consensus about when exactly this will happen. As James Quincey, boss of Coca-Cola, told investors earlier this year, “I expect elasticity to increase at some point in the future. Will that be next quarter? Or will that be next year? I can’t give you the answer to that.” ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

The failure of the first serious attempt by China’s carmakers to conquer European markets, around 15 years ago, was self-inflicted. Their cars were terrible. The shabby quality of Brilliance’s “bs” range (no joke) was matched with looks that scarcely merited the word “design”. Since then the Chinese car industry has become the world’s biggest and its products have improved immeasurably. It churns out more electric vehicles (evs) than any other country, and many are anything but bs. It is also an ev-battery superpower. Listen to this story. Enjoy more audio and podcasts on More

If you have a high temperature or are recovering from heart surgery, it is difficult to use machine tools. And if you are having a nervous breakdown, machine tools are best avoided. Sick days are the remedy. They are meant to prevent people from hurting themselves, their co-workers, customers or passers-by on the job. Working from home has flipped this logic on its head. If you can work from the kitchen table, today’s hybrid workers increasingly conclude, then why not from bed—so long as the brain is on and the Zoom camera off? Listen to this story. Enjoy more audio and podcasts on More

Weeks after explosions caused leaks from Nord Stream 1 and Nord Stream 2, two undersea gas pipelines linking Russia and Germany, another act of suspected sabotage rocked Europe’s biggest economy. On October 8th Deutsche Bahn (db), the state-owned rail giant, said it needed to suspend all services in northern Germany for around three hours. Damage to cables indispensable for rail traffic had led to a breakdown of its wireless communication system. The incident left thousands of passengers stranded on a Saturday morning.Listen to this story. Enjoy more audio and podcasts on More

Fiore Winery in Maryland is among those experiencing the insect’s destructive effects.
The winery’s owner says he has already lost about 50% of production this year because of the lanternflies.
Researchers say they have made their way across the country by clinging to the wheel wells of cars and hopping onto trains or planes, and laying their eggs along the way.

It’s 2 p.m. in Pylesville, Maryland, and Mike Fiore is patrolling the vineyards he’s owned since 1975 for an insect that recently began wreaking havoc on his property – the invasive spotted lanternfly.
“If we don’t destroy them, [they’ll] destroy us,” said Fiore, a 78-year-old immigrant from Italy whose family has been in the wine business for more than 300 years. “This is the most destructive insect.”

According to the U.S. Department of Agriculture, the vampire-like planthopper feeds on a wide range of ornamental, fruit and woody trees, including grapevines. Fiore Winery is among those experiencing the insect’s destructive effects, having already lost about 50% of its production this year because of the lanternflies, according to its owner.
“We’ve never seen anything like this,” Fiore said.
The spotted lanternfly is native to Asia, and was first detected in Pennsylvania in 2014. It has since spread across 14 states: Connecticut, Delaware, Indiana, Maryland, Massachusetts, Michigan, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Virginia, and West Virginia.

A cluster of spotted lanternflies on a grapevine.
Penn State University

Exactly how many of the insects are wreaking havoc on crops across the country remains unknown. But according to Julie Urban, an associate research professor of entomology at Penn State, it’s likely in the billions.
“There’s potential for the lanternfly to be right up there among the most serious things that could impact a vineyard,” Urban told CNBC. “The true story is going to depend on how far it spreads.”

Spotted lanternflies aren’t great fliers, but are great hitchhikers. Researchers say they have made their way around the United States by clinging to the wheel wells of cars and hopping onto trains or planes, and laying their eggs along the way.
In Kempton, Pennsylvania, Larry Shrawder owns one of the first vineyards hit hard by the insects. Years later, he’s still recovering.
“They cover the entire trunk and you get to the point where you can’t even see the trunk anymore,” the Stony Run Winery owner told CNBC. “It’s just side by side lanternflies all sucking the juice out of your plant.”
When it comes to grapevines, experts say the insects target the vine rather than the grape. And Shrawder said the insects continually bleed the plant of nutrients.

Penn State associate research professor Julie Urban conducts research in the field to combat spotted lanternflies.

“It eliminates the plant’s ability to ripen fruit and to store carbohydrates over winter and most of the death occurs the following year when the plant doesn’t wake up in the spring,” he said.
Shrawder said it’s been four years since spotted lanternflies started feasting on his vines.
“For quite a while, we thought we were just going to be out of business,” he said. “The 15% of the vineyard we lost translates to about 30,000 bottles per year and about $525,000 worth of product a year that was taken out by the flies.”
To try and keep the insects off, Shrawder wrapped his vines in special white nets. That didn’t work, but he said spraying insecticide on the trees surrounding the vineyard did help.
“It’s not successful completely – but we certainly reduce the insect bloat in the vineyard that way,” he said.
A major concern is that the planthopper will invade the nation’s largest wine vineyards in New York and California.

Left photo: Healthy vines bearing grapes. Right photo: Vines destroyed by spotted lanternflies.
Larry Shrawder

“It’s not a matter of if – it’s a matter of when,” Urban said. “Right now, lanternfly is not yet established in vineyards [in New York’s] Long Island or… in the Finger Lakes. Certainly if they get out to wine growing regions on the West Coast, it could be a… very severe economic impact.”
It’s not yet known how much damage the spotted lanternflies will bring as they continue to spread. But Fiore said his advice to other vineyard owners was that early detection is key.
“Don’t let your guard down for a minute,” Fiore said.

WATCH LIVEWATCH IN THE APP More

Nikola agreed in August to acquire battery-pack maker Romeo Power for $144 million in stock.
At least half of Romeo Power shares had to be “tendered” by Wednesday to complete the deal.
Nikola said that just enough Romeo Power shares were tendered and the deal will now close.

Nikola Motor Company
Source: Nikola Motor Company

Electric heavy truck maker Nikola said Thursday that its planned acquisition of battery-pack maker Romeo Power will now proceed, after Romeo Power shareholders agreed to tender just over half of the company’s outstanding shares.
In August, Nikola said it had agreed to acquire Romeo Power, a California-based maker of battery modules that has been struggling financially, for $144 million in stock. But the deal was contingent on a tender offer to Romeo shareholders: Investors had to “tender,” or exchange, at least half of Romeo’s shares outstanding by midnight Wednesday for the deal to proceed.

Nikola said that 93.16 million Romeo shares, representing about 50.1% of the company’s total shares outstanding, had been tendered by the deadline – just enough to complete the deal.
The remaining shares of Romeo Power will now be “canceled and converted” to shares of Nikola, with Romeo shareholders receiving 0.1186 of a Nikola share for each share of Romeo they hold, Nikola said.
Romeo Power specializes in building battery modules and packs for large electric commercial vehicles, using lithium-ion battery cells made by other companies. Nikola, which expects to ship between 300 and 500 of its electric semitrucks by year-end, is Romeo’s largest customer.
Nikola said in August that it had agreed to provide Romeo with $35 million in interim funding to continue its operations until the merger is completed. The truck maker has said that bringing Romeo’s operations in-house could save it up to $350 million over the next four years.
Shares of the company fell more than 3% in premarket trade Thursday.
Nikola will report its third-quarter results before the U.S. markets open on Nov. 3.

WATCH LIVEWATCH IN THE APP More

Walgreens earnings and revenue beat analysts’ expectations.
Its profit outlook for the new fiscal year is largely in line with Wall Street’s projections.
The company said it expects tough comparisons and the strong dollar to weigh on growth.

Walgreens Boots Alliance on Thursday exceeded fiscal fourth-quarter sales expectations, as the drugstore chain turns itself into a more health-care focused company.
The company said it anticipates full-year adjusted earnings per share of $4.45 to $4.65 in the coming fiscal year, which is about in line with what Wall Street expected. Yet Walgreens said its business growth will face tough comparisons as it laps strong demand for Covid vaccines and gets hits by the strength of the dollar.

Here’s what the company reported compared with what analysts were expecting for the fiscal fourth quarter ended Aug. 31, based on Refinitiv data:

Earnings per share: 80 cents, adjusted, vs. 77 cents expected
Revenue: $32.45 billion vs. $32.09 billion expected

Sales declined from the previous year’s quarter. Including certain costs, Walgreens swung to a loss in the three-month period. Its net loss was $415 million, or 48 cents per share, compared with a net income of $627 million, or 72 cents per share, a year earlier.
On a call with investors, Global CFO James Kehoe said Walgreens’ profit took the biggest hit from a $780 million non-cash impairment charge in its Boots UK business related to trademarks and licenses. It also had costs associated with its long-term cost management program, as it shuttered some stores. A year ago, Walgreens laid out a cost savings goal of $3.3 billion by 2024.
Walgreens has made significant investments to transform from a major drugstore chain to a large health-care company. It is opening hundreds of doctor offices with VillageMD. It invested $5.2 billion to become majority owner of the primary-care company. It recently announced plans to accelerate acquisitions of two other companies: CareCentrix, which coordinates care and benefits for at-home care, and Shields Health Solutions, a specialty pharmacy company.
Walgreens CEO Roz Brewer said in a news release that the coming fiscal year “will be a year of accelerating core growth and rapidly scaling our U.S. Healthcare business.”

At the end of the quarter, VillageMD has 334 doctor offices — including 152 that are next to Walgreens stores. Walgreens also has 70 stores with Health Corners, a designated space where a registered nurse or pharmacist can schedule a mammogram, screen a patient for high blood pressure or diabetes or help with other health-care needs.
Covid vaccines, which boosted Walgreens’ sales and foot traffic, have fallen off significantly. In the fourth quarter, the drugstore chain administered 2.9 million vaccinations. That’s a decline from 4.7 million vaccines in its fiscal third quarter, and a sharp drop from the 15.6 million vaccines in the first quarter and the 11.8 million in the second quarter.
Sales in Walgreens’ retail and pharmacy division in the U.S. decreased by 7.2% to $26.7 billion in the fourth quarter compared with the year-ago period. Comparable sales rose 1.6%, however.
Comparable prescriptions, excluding immunizations, were roughly flat with the year-ago period. Prescription volume got a lift from medications needed for seasonal illnesses and refills of maintenance medications, but were hurt by reduced store hours due to staffing shortages, Kehoe said on the investor call.
Its international business took a big hit from currency headwinds. It had fourth quarter sales of $5.1 billion, a drop of 6.6% from the year-ago period. That included a 13.3% adverse currency impact.
As customers come back to stores, Walgreens also said it is investing in its workforce to return to normal operating hours. However, it has continued to see some changes in shopping habits. Its U.S. digital sales growth grew 14% in the fourth quarter, on top of an 82% increase in the year-ago period.
On Thursday, the company raised its outlook for the health care division. It said it now anticipates a sales target of $12 billion, rather than $11 billion, for fiscal 2025.
As of Wednesday’s close, Walgreens shares are down nearly 39% so far this year. That trails behind the S&P 500, which is down about 25%. Shares of Walgreens closed Wednesday at $31.94, down about 2%.
Read the company’s earnings release here.
This story is developing. Please check back for updates.

WATCH LIVEWATCH IN THE APP More

For the third quarter, Delta reported net income of $695 million on record revenue, the results of a surge in summer travel with high fares to match.
Delta said international travel, particularly to Europe, rebounded this summer.
The airline is working to restore its capacity to pre-pandemic levels by next summer.

A Delta Airlines Airbus A-350 aircraft, flight number DL40 bound for Los Angeles takes off from Kingsford Smith International Airport on July 26, 2021 in Sydney, Australia.
James D. Morgan | Getty Images

Delta Air Lines expects to post another profit in the last quarter of the year and said both leisure and business travel continue to recover.
The carrier on Thursday said it expects earnings per share of $1 to $1.25 in the fourth quarter, with revenue topping the same period of 2019 by 5% to 9%, a sign higher airfares will stay firm.

Delta shares were up more than 1% in premarket trading, giving back earlier gains after a higher-than-expected U.S. inflation reading weighed on the broader market.
For the third quarter, Delta reported net income of $695 million, or $1.08 per share, down from a $1.5 billion profit three years earlier, on record revenue of close to $14 billion, the results of a surge in summer travel with high fares to match. Adjusting for one-time items, Delta posted earnings per share of $1.51, while adjusted revenue came in at $12.8 billion, 3% above 2019 levels, despite a smaller schedule.
“The travel recovery continues as consumer spend shifts to experiences and demand improves in corporate and international,” CEO Ed Bastian said in an earnings release.
Here’s how Delta performed in the third quarter, compared with Wall Street expectations based on Refinitiv consensus estimates:

Adjusted earnings per share: $1.51 versus $1.53 expected.
Adjusted revenue: $12.84 billion versus $12.87 billion expected.

The Atlanta-based airline is the first U.S. carrier to report third-quarter results, and its upbeat forecast comes as clouds form over other industries, like some retailers. American Airlines, which reports its quarterly results next week, raised its third-quarter revenue forecast on Tuesday, while United Airlines is planning another big trans-Atlantic expansion for 2023, a bet international travel will continue to rebound.

The start of Delta’s peak spring and summer travel season was rocky, as disruptions prompted the airline and some of its rivals to trim summer flights to avoid more problems for travelers. Delta said that its capacity would be as much as 92% restored to 2019 levels in the fourth quarter and that it’s working toward a full recovery by next summer.
Delta and other airlines have been grappling with a surge in costs from labor to fuel. Delta’s fuel bill for the third quarter rose nearly 48% from 2019 to $3.32 billion.
Even stripping out fuel, costs per available seat mile were up close to 23% from 2019 in the last quarter, partly increased because Delta didn’t fly as much.
Bastian told CNBC’s “Squawk Box” on Thursday that the airline is close to its staffing needs and has hired about 20,000 people since the start of 2021, after a similar number took buyouts at the company’s urging during the coronavirus pandemic’s travel slump. He said the airline is now focused on training staff.
International travel, largely sidelined in 2020 and 2021, was a bright spot in the third quarter, with unit revenue growth outpacing domestic for the first time since the pandemic started, Delta said, calling out Italy, Spain and Greece as popular destinations.
Executives at Delta and United have recently said European travel has been resilient this fall.
The airline said business bookings were 80% recovered to pre-pandemic levels at the end of the quarter and that recent surveys show 90% of corporate accounts indicating that they will maintain or increase travel in the fourth quarter compared with the third.
The carrier said Hurricane Ian, which ripped through Florida last month, cost it $35 million in revenue and had a 3-cent impact on adjusted per-share earnings.
Delta will hold a 10 a.m. ET call to discuss results.
Correction: Delta said its capacity would be as much as 92% restored to 2019 levels in the fourth quarter. An earlier version misstated the timing of the statement.

WATCH LIVEWATCH IN THE APP More