Auto Parts Industry Warns Consumer Behavior Is Changing RAPIDLY
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The company's stock was soaring. IT hit a record high that was well above previous record highs. This was january of twenty twenty two. The pandemic, the supply shock customers were load with cash. The good times everyone thought we're gonna forever, except over the last couple years, the customers disappear.

The company is reported increasingly negative same store sales and its stocks is down about eighty five percent to its lowest Price since two thousand nine. I'm talking about advances, auto parts and IT story's emblematic of the past couple years the artificial high of the supply shock that is slowly fading from view. And for some, that faith has been more catastrophe hic than for others.

Yet it's in there in everything. The only question is degree. We see consumer spending that keeps slipping, including october retail sales that we just got this week. We also got industrial production that is sliding lower too. So it's not just advanced auto part that is having to close stores and management notes lay off workers so they won't say how many workers are going to end up being laid off.

There are too many of these stories pepper throughout the economy because what advanced auto part shows only too well is the downside to the supply shock that we're still grappling with here at the end of twenty twenty four. Not a soft landing, not necessarily even recession risk in the U. S.

IT is still the downswing cycle that a lot of other indications are saying. We've got a lot more of this to go, including the us dollars exchange values that i've that i've gone over in the last couple of videos. So we've got retail sales.

We ve got customer spending on industrial production and a whole budget beyond that are consistent with this continuing downturn and not just the U. S. But the entire global economy.

So Steve, Steve, let's start with retail sales. Retail sales came out for the month of october. Some people said they were really good. Some people said in like the GDP control group, which is shockingly negative, people have been blaming season, seasonal factors, but overall, the retail sales IT doesn't matter the monthly variation, the trend continues anyway.

Yeah, absolutely. Jeff is all about the trend. And when we talk about advance, all of parts is really a great example of what's going on with retailers all over the country because yeah, when you look at their business, is demand for people to cds, did that really go away? Or is the fact that people don't have the money to go buy the parts to fix their cars? And I think it's a monetary issue, be as people do do, to fix their cards.

And it's not like all the sudden cars got you so good that they never break any more. So advanced autoparts business models fAiling. But when you look at their report of what they said they're seen, we're gona close seven hundred store and that's a significant amount.

That's not, hey, we're going to get rid of a couple employees here and there. We're going to close seven hundred stores. And that's not just going affect their workers is in fact, a lot of other people.

And you think you know they are rent that they pay at their location. But then upstream from that, this we're going to close a couple of warehouses because, well, we don't need them either. And then upstream from that, their suppliers said, hey, because demands going down, we're gna actually adjust our projections as as well.

And you and I know when they say that, that means we're gonna to trim our production lines, which means hours are going na get cut, jobs are going to get cut. So you can see that all comes back to the consumer here. I don't think they have enough money, jeff, and that's what we're in, in retail cells. We're seeing that down. We're trend is they just can't afford these higher Prices, and that's leading to demand a drop at a time when supply is going higher.

Yeah, for the vance auto parts, you he said, Steve, not like we suddenly we stopped fixing our cars. That hasn't changed or suddenly everybody just takes IT to the local shop. There are a lot of due yourselves.

Do IT yourselfers out there that you want to fix their own cars that they can afford IT. What advance part auto parts has said is that the last three quarters in particular? So going back to 嗯 part of this year， late last year, something big happened to their customers.

IT was before they were struggling. You know, twenty twenty one was great. Everybody had money. Their customers were load with cash, they came in.

But all the expensive stuff that they could, this slowly started to transition in twenty, twenty two and twenty and twenty three. But then something happened late in twenty twenty. 对， of course we know what that is. We've been talking about since then.

Since last year, we told you that there was an inflection, the economy and that's what advances all apart, said we saw something big, happy with our customers and now they're really not coming into our stores to the point that we have to close hundreds and hundreds of our shops as well as everything else is Steve just said. And that is consistent, by the way, with the retail sales figures. When you step back and look at them, certainly on a year over year basis, as I keep pointing out, anything less than three percent is solidly in the danger zone for a recession and warned turn off retail sales.

Over the last seven months, salad have been growing at a less than three percent rate. In fact, the every six months average over your change in retail sales as of october, including the latest figure, is just two point four seven percent. So well below the three percent range is consistent with what advanced auto parts are saying. Consumers are indeed really struggling here.

Yeah, absolutely, jeff. And a lot of people, when they look at the retail sales data, they understand this. A moral term of me is not inflation adJusting. So you mentioned, hey, if it's under three percent and there's a good reason you mentioned that because there's a factor here, if inflation going you think a lot look, retail sales is going up.

Is that going up because more people are shopping, which advanced out of parts, would say, well, they're not at our store or is IT because Prices are going up? Now if we adjust IT for the consumer Price index, which isn't probably the best way to do IT, but really the easiest and only way we can do IT, what you find out is going back to twenty twenty two. In fact, late twenty twenty one, there was a huge drop in retail cells is largely been negative on an inflation adjust the basis since then.

So we're looking at almost three years of negative real retail cells. And this is not a good science for the economy because you think as a business or yes, OK, my Prices are going up and i'm selling things at a higher Price and i'm selling less things and they've been holding on and holding on. We we've been talking about the election.

Everybody's been put all this notion that demands going to come surging back once the elections are. But what if that does not? And that's the risk here because allow these employers you they're not big companies.

They don't have massive credit lines. They can't go. If you start, there's a point where they they don't see customers coming in.

Bind are going to have to cut more of their workers. And that's exactly what we're seeing throughout the economy, is people can't afford these higher Prices. They can't afford the discretionary goods and they're spending is dropping.

Yeah, you mentioned a couple of big things there that we really want to focus in on. First of all, real retail cells. That's absolutely the case.

You look at real retail sales through october and the six months average euro over your change, there is minus three tens, ten percent, as you were saying. So in nominal terms for paying to two and a half percent more to get roughly, on average, three tens of percent less. That is falling further and further behind and is exactly what people have been feeling.

And that's the reason why voters were turning to trump to begin with. And the only thing is, if trump represented a major shift in the economy or major opportunity the economy, then manufacturer and producers would be producing in anticipation of IT. In the latest ata we got from the federal reserve on the industrial production shows the exact opposite.

Now you can say, well, they didn't know that trump was gonna win and maybe that was too uncertain. But manufacturing and industry production overall have been flagging and falling for about six months on average. Industrial production today again was down for the third time in the last four months.

Manufacturing was down even north a again. I think IT was third time in four months or fourth time in five months. So the main uh, turing of production part of the economy actually lined up with retail sales being weak, consumers buying fewer goods even though they're anning a bit more to do.

So advanced auto part saying we're not selling as many goods as we would like to. And now we're being pressured into the point where we have to we have to cut back on a lot of lot of our own products. We're seeing that across the entire goods economy, which is consistent with everything that we've been talking about.

So IT all adds up to the same thing, which is twenty twenty two, really twenty twenty two, everything that looked really, really good. But that was all an illusion, a Price illusion. And slowly over the last couple years, that illusion has been revealed.

And what's what's being revealed is like we're seeing in these statistics. It's not really about you. A recession is about where the economy actually needs to go in order to rebaLance itself and some, some more stable fashion.

Yeah, jeff, and that's interesting because we talk about how supply and the man needs to baLance out here. And this is interesting because when you look at the relationship between real retail cells and industrial production, you get something very interested. Aside from the fact if we see industrial production numbers get revised lower, A A bunt we see next month will probably mean this month is getting revised down.

But there's a direct relationship. So we can kind to go back to what happened with advanced on of part. They said, look, our customers stop coming in buying stuff. So that means we stopped ordering as much stuff from our whole cells, who stopped orianas much stuff from the manufacturers.

Now when we take a look in industrial production and overlay against real retail cells, we can see where there's a huge drop starting around twenty, twenty, twenty two in real retail cells and they negative. But you look at the slope of industrial production, it's been trending down. So you see at the manufacturing level, they thought, well, maybe can we will come out and spend.

So we'll keep producing. We'll keep stuffing the channel with stuff and actually know one up. But now with some industrial production flattening now is close to being negative maybe, but even is negative at this point.

I'm not sure I have to look at the data. What that's telling us is the manufacturing sector is on the verge force to have to lay people love. And so you look at the director of the economy is not going in the right direction.

People think, hey, we've got new president. We've got the one is going turn the economy around. But you know, jeff, we talk about just because you've put a new captain on the shift and turn the wheel doesn't mean the ship moves.

The economy is too big for one person. Projector here is not going in the right direction. And from my stampede, I think it's going to accelerate more to the downside in the months to come.

Yeah when you're time to Steve really isn't I mean, trumpet, he doesn't even take office until january twenty years next year. That's a couple months away. So what we're really talking about is that the belief that sentiment is enough to turn everything around, right, that everybody's now happy that a republican is in the White house of republican congress, republican and republican house.

And there are just because it's different from the last several years, which obviously did not go well. That's a reason why we had to shift to begin with that just the fact that people, business leaders and companies and managers will be comforted by the fact that things will be different on a national level, that somehow that sentiment is enough to turn around. What has been a two year along downturn that had previously shown very little sign that he was going to turn around.

And I think that's just when you stop and put IT in those terms, IT starts to sound more and more ridiculous because IT actually it's it's just giving way too much credit to, like economists do, pure sentiment. So if you're counting on just happy feelings being able to turn around everything in a very short period of time, I think that's why you look at other indications like the U. S.

Dollar going up that suggest that, yeah, the chances of this happening aren't good. In fact, whatever you think about mr. Trump's ese policies, he's inheriting a situation that's already much more difficult than the one he inherited in two thousand sixteen.

I did a lifestraw us where made his comparison's IT looks a lot more like two thousand one than anything. So there's a very difficult set of circumstances, even if you believe in the trumpet administration. He starting from much further bag, which means the test to turn everything around is much greater to begin within.

Even if he could IT would take a lot of time for those policies to have an effect. So we're talking about at the very earliest, maybe the middle of next year. Meanwhile, we we like the fed.

We're looking back here at the data is coming in suggesting things are beginning. Things are still turning lower, still eventually. Manufacturing, manufacturing jobs, even according to the establishment survey, have been contracting and pretty solidly contracting over the last six months.

Yes, there was some distortion in october s number because of the boeing strike. But even without boeing, the manufacturing jobs would have been down by roughly twenty thousand anyway. So the the ship is already moving in the wrong direction, and IT takes a long time to give you to move back in the right one.

Yeah, if you put this in perspective of using the ship and algan, let's say we're on the titanic and we just had the iceberg and you we're taking on water, just changing out the captain and change the situation. IT doesn't.

And that's a problem here because maybe sentiment does of work and it's good that people are excited now and think the economy is going to turn around, but there's only really one aspect that can really change IT is if they reach into their walls and actually spend money into the economy, I don't mean go on by bit coin or buy a stock to mean those that financialization isn't going to create economic group. What we need these people is, hey, you know what? I am more optimistic about the economy.

I believe i'm going to get more hours or the fact machines is going to start worrying and new orders are going to come in and i'm going to go out and spend money because I believe in IT now we can step back and say, hey, if that happens, that's a wonderful thing. And then sentiment can turn the economy, which is why we look at the data. In fact, does he had some data out recently, he says, hate the attender parks is going down.

And you know, I can tell you, jeff, as I been to a few of lately, they are going down. In part of the reason, and this is interesting, is they keep raising their Prices. And i've noticed that there's just an objection.

Now people aren't they used to come and hang out of the parks, locals that I would meet there. They're not coming because it's now getting too expensive. So you start looking around the economy and you ask yourself, are people going to spend? And at the moment, IT doesn't appear that way. It's more along the lines of, hey, i'm going to go buy stocks in bitcoin and hopefully you'll go out and spend and then i'll get rich.

Well, is that that's the point right? Steep we get to that point where companies and businesses have been raising Prices at last couple years because they think they can get away with IT and eventually they get to that war where they start raising Prices and suddenly people stop showing up. And so at that point, there's only two ways to reconcile that in baLance.

The first is to cut your Prices back um die them down substantially to start getting demand back in again. And in any type of commodity where there's a liquid marketplace like oil Prices, for example, that's what hand was when is are happening. Unfortunately, this not the way that works in the real economy where we don't have a market to say your way over Priced on your good relatives to the actual fundamentals.

So what happens is exactly what we see with advanced auto parts. They have to instead of cutting their Prices, which they can do because their input costs are are essentially fixed too, they have to cut back on their capacity, which means closing things, which means firing workers in in h, shuttering capacity and stores and factories and warehouses and everything else. And so advanced to part is not the only one that is faced with this decision is what we keep coming back to is that they're making the decision to cut way back on their capacity because that's the only way they can reconcile with the business that they have.

Other companies might want to cut costs and might want to cut Prices, but they can do that either. So they're gonna to have be faced with the same choice, which is to cut back on their cost where they can cut back on their capacity, cut back on their output and investments. So what we're seeing in in, in the consumer economy, dust rial production advance auto part is so many, so much of the the U. S. And the rest of the world being forced into that position, which is what we're saying is the the really the warning signs that we're seeing all around pretty much the data, the markets and everything else.

You know, jf m, glad you said to work capacity because it's a really interesting, because IT comes in a line, something called capacity utilization.

We get that with the industrial production data, and you hit the spot on because the idea here with the advanced all parties, yeah, maybe they could cut Prices, right? Maybe they could go out to the shareholders and say, hey, you know what? We're going to take a little bit bit hit here, what we're going to cut down our margins just to keep our customers coming in.

But instead, they didn't say that, look, words is going to close stores in that. Interesting because when we look at companion utilities, which is a percent of a factor is being utilized, you can overlay the unemployment report or you they say continued unemployment claims, deever unemployment statistics, you like, and there's an immediate and direct relationship as a percent of a factory being utilized declined while the unemployment rate rises. And so we look at this, and again at all, back to the consumers not having enough money.

What we see an advanced auto parts saying, hate luck. People are in buying self. We're going to cut fat stores.

And as you said, warehouse and distribution. But you look at the factory level, they are forced to cut because they have no choice. They're biggest cost as labor. And if you've got people staying around, you can only sweep the floor so many times before you've got to to send them home and I know, jeff, you're laughing, but actually know people.

They were in the manufacturer inspector and I said, what do you do when they saw that? Well, we clean the shop and we do this and know that I said, what happens when it's all done? Said I fire.

Oh, yeah, that's I mean, that's it's really the scene which we're hoping to avoid and really hoping sentiment is, is actually the the antidote that we need. But you know, let's end here on capacity unitization because that's, I think the one number that maybe the most important number that came out to on with industrial production, which was, I think IT felt the seventy four point one percent, which was the new cycle law, which means that factories across the us. And I know the good economy is a part of the overall, but IT is the signal part.

As the goods economy goes, the rest of the economy will because it's a reflection of as we keep a Steve, your pointing out, it's a reflection of consumers ability to spend not just on goods but also services. And so when they are pressured, you see IT, first and foremost, in the goods economy. And with capacity, the utilization continue to decline to a cycle law that tells you that businesses in the manufacturing part of the economy, in the goods economy are getting to this point where they have to say, I just can't I just can't hold on here.

I got theyve swept the floor thirty seven times and I can't do IT for a number of thirty edge, just can't afford. I have to make some bad decisions, some decisions I don't want to make. And as they do that, I just leads to this cascine effect where we continue to see weakness across everything else.

That's what the labor data has been showing since the summer time, and that's what the rust macroeconomic statistic show as well. It's interest rates. It's the fed. I love how the dollar is before I was, the dollar is too strong because the fed won't cut rates, and then the fed starts cutting rates and outs of dollars too strong because the fed not cutting rates fast. And almost like you're trying to tie everything that happens to the fed in some way or another.