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

Since last month, the US job market has fully recouped the number of jobs lost to the pandemic in less than half the time it took after the previous downturn. A staggering 528,000 jobs were created in July, raising the total number of payrolls above February 2020 levels.

However, good news may be bad news in this case, as the blockbuster jobs report could prompt the Federal Reserve to tighten more aggressively than planned to cool growth. This could decisively trigger the recession that many market watchers believe we’re already in, as real gross domestic product (GDP) has contracted for two straight quarters, inflation has reached near historic highs and a services sector is shrinking.

In addition, US yields have inverted at their lowest levels since 2000. On Friday, the two-year government bond yield closed at 3.24% and the 10-year at 2.83%, a 41 basis point difference. Every recession in recent decades has been preceded by a yield curve inversion, so we may be very late in the business cycle.

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

Americans are cutting back on motoring, but lower fuel costs could be a game-changer

Another sign that parts of the economy could be slowing down? Lower fuel demand combined with falling gas prices. Data from the Energy Information Administration (EIA) shows that Americans are using less gas per day this summer than they did in the summer of 2020, when nearly everyone was stuck indoors King of the Tigers on Netflix.

Gas prices above $5 a gallon appear to be a greater deterrent to venturing outside your home than Covid fears and state-mandated lockdowns have been.

The decline in driving activity is consistent with the results of a recent American Automobile Association (AAA) survey. The nonprofit found that a whopping 88% of Americans are driving less because of higher gas prices. Three-quarters of respondents said they combine errands on every trip, while 56% said they reduce shopping and dining out.

Interestingly, only 13% of respondents said they would drive a more fuel-efficient vehicle in response to rising gas prices; Virtually none or 2% of respondents said they would switch to an electric vehicle (EV).

The EIA is due to report last week’s fuel economy figures on Wednesday and I expect demand is back above 2020 levels after gas prices fell for more than 50 straight days after hitting a 5-week high $.02 reached June 14th.

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

Another recent poll conducted by McKinsey & Co. shows that many Americans are still planning a vacation “no matter what” this summer, even as inflation remains a top concern. Almost 70% of respondents said they would travel regardless of rising prices, Covid, a possible economic slowdown or other concerns.

That positive sentiment was echoed by Booking Holdings CEO Glenn Fogel, who told CNBC this week that Americans are “going to travel further and, over the long term, will travel more and more.”

Fogel 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, saw more room bookings in the three months ended June 20 than in any other quarter of 2019 before the pandemic. Total revenue was $4.3 billion, nearly doubling the previous quarter, while net income was $857 million compared to a net loss in the year-ago quarter.

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

Not only are we bullish on Booking, but also on rivals Tripadvisor and Expedia, whose shares have recouped losses, and then some, as gas prices retreated from their all-time highs on June 14th.

Shipping giant Maersk reports record results

In addition to consumers, lower gas costs are beneficial for industries that consume large amounts of liquid fuels derived from petroleum. These include airlines and container shipping companies, the latter of which are still seeing rising congestion at ports in North America, Europe and China, according to shipping giant AP Moller-Maersk.

The world’s second-biggest shipping company is often viewed as a barometer of the global shipping industry, and if that’s the case, Maersk’s second-quarter results should give investors some comfort. The Copenhagen-based company reported record sales of $21.7 billion and net income of $8.6 billion for the June quarter, also a new quarterly record.

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

Some financial news has pointed out 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, no significant slowdown required. According to the Census Bureau, new orders for durable industrial goods rose to $272.6 billion in June, up 2% from May. Industrial goods shipments have also risen in 13 of the last 14 months since June.

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