We've now had two hotel CEOs come on and pound the table about how strong their business is, thanks in part to infrastructure projects.
First, it was Pat Pacious last week, telling us how room demand is running "exceptionally strong" at Choice Hotels' brands (which include EconoLodge, Quality Inn, and MainStay Suites). "You're seeing the reshoring of American manufacturing and the infrastructure projects starting to impact that blue collar traveler," he explained.
Then, yesterday, Wyndham Hotels CEO Geoff Ballotti said much the same thing. His current mix is running around 80% leisure travelers, 20% infrastructure business. "Our business travelers wear boots and hard hats," he said, "and they're traveling more frequently than ever. We have seen seven consecutive quarters of infrastructure pickup."
"Our infrastructure business was up 15% in the third quarter, over 20% in the fourth quarter, and that will continue to pick up because for a lot of these roads, bridges, and ports, that work has not yet started," he added.
Okay. So let's get this straight. Infrastructure spending--namely, the trillion-dollar package that President Biden signed into law almost the very day the Nasdaq peaked, in November 2021--is now fueling the kind of middle-class consumer strength that could end up making the Fed have to do more rate hikes. I'm all for "Build America," but we seem to be working at somewhat cross purposes here.
In a subtle way, this could end up crowding out private sector jobs and activity in favor of government work. That's because infrastructure projects fueled by federal dollars are largely immune from broader economic pressures. Meanwhile, more Fed rate hikes likely means a smaller private sector, if not in aggregate, then certainly relative to the public space.
For this reason, it's all the more important to watch the breakdown of jobs data from here on out between government payrolls and the rest of the economy. The headline numbers might look deceptively strong unless you control for that. The important thing to remember is that government spending is not the business cycle, but the Fed has to react to its impact on the broader economy as if it were.
This quote from when the bill was signed 18 months ago gave me a wry smile when I came back across it: "Infrastructure spending has a bigger effect on jobs when we're in an economic recession," one expert told CNN at the time. Indeed, it does. But could it actually send us into a recession if it hits too soon, and the Fed reacts accordingly? I doubt that's what the Biden White House had in mind.
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ELSEWHERE...
The Intel story keeps getting worse. They just slashed their dividend by two-thirds this morning. The last cut was all the way back in 2000. The shares are only down half a percent right now, but they've already lost 60% of their value in the past couple years. It brings the dividend yield from over 5% to less than 2%, which is a tough pill to swallow when you can get 5% on a six-month Treasury bill, and it's another reminder to be wary of tantalizingly high dividends.
Speaking of Treasury bills, the six-month auction yesterday was apparently "disastrous," according to Brian Reynolds, because professional investors want nothing to do with any bills that could mature when we hit the debt ceiling, and therefore not get paid. For the broader public, though, it still seems like a pretty good deal right now.
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ON THE SHOW
Don't look now, but shares of Wingstop are jumping 10% after super strong earnings today. Their comps were almost 9% last quarter, versus the 6% expected. And chicken wing prices--remember when they soared early in the pandemic?--have since fallen back to pre-Covid levels, taking the pressure off of their margins. We'll talk to the CEO today.
But going the other way is ZipRecruiter, whose shares are down 19%--yikes!--after results. "In the first few weeks of 2023, employers have moderated their hiring plans and reduced recruitment budgets," the CEO said in the release. We'll talk to him in Power Lunch, but this obviously sets off my macro-spidey-sense.
And in fact, one of our market guests has an interesting thesis about all of this. "The high rate of inflation has been causing 'money illusion' for companies," argues Leuthold Group's Doug Ramsey, who is on at 1 p.m. "Slowing real sales growth is camouflaged by rising prices."
"That's one reason companies have been reluctant to cut workers," he says, warning that "the same thing happened prior to and even during the recessions that began in 1973 and 1980." He seems to think we're headed in that direction this time around.
As always, tweet me any questions or feedback at @KellyCNBC
HOME EC
I love to see United making it easier for families to sit together on planes, although it pains me a little to see that it only applies to two travelers under the age of 12, and one adult. Would be great if they increased that number! Maybe the government can subsidize it in order to boost family sizes. Oooh, how about, "fourth kid travels free!"
For more glimpses of home life, you can find me on Instagram @realkellyevans.
See you at 1 p.m...
Kelly
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