In my Tuesday column I wrote about the precarious situation in Europe, specifically about skyrocketing energy prices, the unintended but easily predictable result of sanctions on Russia. It is because of those prices that the European consumer, small business sector and manufacturing sector face a long, dark winner.
Goldman Sachs was out earlier this week projecting that by early 2023 the average household's monthly energy bill in Italy will go from 150 euros to 600 euros. Similar increases can be expected throughout Europe. Governments are preparing massive support packages to address the situation, which will only worsen their financial situation as well as their currencies. The new prime minister of the UK is drafting a 130-billion pound rescue effort to help the country get through the next 18 months by subsidizing energy costs to consumers and business. It is hard to see how the Continent avoids a significant and long recession at this point.
The situation here is better thanks to our much more abundant native sources of oil and gas supplies. However, this country's consumer class is still under a great deal of duress. The average household has lost buying power for 18 straight months due to the ravages of inflation. About 20 million Americans are late on their utility bills according to one recent survey and a record number of Americans hold at least two jobs right now in order to make ends meet.
With personal savings rates at their lowest levels since the financial crisis and credit card debt rising at its fastest rate this century, consumers will have little choice but to continue to cut back on any unnecessary purchases over the coming months. This is especially true among lower- and middle-class income consumers who are significantly more affected by rising energy prices, grocery costs and rents.
This development will impact just about every company serving the consumer. Even mighty Amazon (AMZN) has been forced to radically reduce its planned warehouse buildout recently. A recent report from MWPVL International Inc. estimated Amazon recently put the kibosh on plans to build 42 warehouses accounting for 25 million square feet of space. The retail giant has also pushed back the openings of another 21 facilities totaling 28 million square feet.
If Amazon is cutting back significantly because of a fading consumer, it is more than likely other retailers are going to face substantial pain as we head into the holiday season. This is why I continue to be substantially underweight the retail sector and every part of the market heavily dependent on discretionary consumer spending, such as automobile manufacturers.
Healthcare is one of the few areas I continue to add to on dips in the market as demand for medicines, drugs and treatments tends to have much greater inelasticity.
