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00:00So let's get to that question of the day. What is snap signal for growth when we add in all economic indicators from this morning as well. Michael McKee Bloomberg National Economics and policy correspondent Romaine Bostick co-host of Bloomberg Markets The Clothes. I mean I just want to start with you because SNAP signals something about advertising spend that we heard echoed with Abercrombie and Fitch. I'm wondering what your read through to the broader market is from that. Oh I think it's a big read through a big macroeconomic rate though. Look. Remember the old days. I'm old enough to remember when ad spending was sort of one of the key barometers here of a slowing economy or a stronger economy. I think what was surprise a lot of folks about SNAP isn't just the slowdown but the idea that this company came out with earnings just for four and a half weeks ago where it kind of gave soft ish guidance then what changed here over the past four weeks that caused it to come out and make this public announcement as it did last night. I think when you see how fast the conditions are deteriorating and more important how fast consumer confidence and sentiment is deteriorating. I think that's going to have a material impact not just on ad spending but on a lot of consumer spending overall. And it's something that I think we should all be paying too. It's clear companies Mike are looking for ways to save money. The middle of the PML is being squeezed. Margins are under pressure. How useful is it to remains point advertising spend as an indication as to the health of the economy. That's a useful indicator but it's not as accurate as it used to be used to be. You would look more towards a increase in ad spend early on in a recession as companies geared up to try to get people's attention that the whole process has become a little bit more truncated. I think what people are failing to think about though here is the difference between some of these companies. I don't want to talk about the social media space in general but if you just look at SNAP and a chart I brought along here versus Best Buy and Best Buy their numbers weren't great but they were they were better. SNAP has never had a positive return on capital and their profit margins have always been negative whereas Best Buy has always had a positive profit margin and their profit margins are staying up even if they are down from where they were. Pre pandemic actually they're about where they were in terms of return on capital. So there's not a differentiation between companies here that is perhaps important. Well that's it's a great point actually remain. I feel like if you just put money in more bank America saying just this like these are the recession guy I'm sorry the pandemic names that are now feeling this pressure not necessarily the services names. I'm just wondering if that narrative holds. I mean it holds water. But remember there's been this rotation kind of going back and forth. And the big concern here is that as services picks up some of the slack once services weaken is they're going to sort of be a swing back to goods. And I think the short answer right now is no probably not in the short term at least based on what we're getting not only out of economic data but more importantly what we're hearing from the companies themselves. I think the forecasts that we got from SNAP yesterday and you sort of put that an overlay that over the forecasts effectively that we got out of JP Morgan Jamie Diamond 24 hours prior. I think it's it's kind of telling that you have a bank here that has I think a really keen bird's eye view of the economy basically saying well yeah there are some clouds out there but nothing is really sort of going to fall out of the sky. And then you have a company like SNAP which is obviously in a much weaker position than a J.P. Morgan is basically saying things aren't all that well. And I think you're seeing the drag down now on a Google on Amazon on a Roku on a trade desk on a WPP. And I think it shows you that investor sentiment right now is in a position where they don't really want to wait around and try to sift through it all just yet. It's rather just head for the door and wait for the smoke to clear remain. Let's just talk about the concealer to Jamie Diamond's point. Jamie Diamond talks about it. I've heard the CEO of Bank of America talking about it. The consumer balance looks fairly good right now in terms of that bank balance. So they still have they still have a lot of the money from the pandemic still to spend that is still out there. The problem lies with companies not the top line. It lies with the coastline in the middle. This is where the problems are showing up right now. Abercrombie's a classic case in point where a higher than expected freight product costs. Looking forward we expect higher costs to remain a headwind. Threats at least this at least year end. We continue to reduce our proposed promotional activity that try to offset one with the other. Yes. This isn't a consumer crisis. This is a profitability crisis in the consumer sector. It is. And you're seeing that not only with sort of our smaller name like an Abercrombie and Fitch you're seeing it with the bigger names who are the same thing more or less out of Target out of Wal-Mart. We're gonna get Nordstrom earnings after the bell here in the U.S. a little bit later. And I think you're going to hear the similar story. I mean look this supply demand imbalance that we've been seeing in the consumer space because of the pandemic. There was always this idea that the supply would somehow catch up that the labor would somehow catch up. And now what we're seeing is deterioration on that side. And then of course that ends up feeding through to the. Outside as well. OK. So when you take a look at the data from today it's the preliminary need for me. But nonetheless we figure 3 for services 53 for the composite but the manufacturing still holding up. And I guess I wonder how long that can last in the data. Well there's a certain amount of momentum in the economy here. And that's what Mary Daley was talking about yesterday. The San Francisco Fed bank president who thinks the economy will avoid recession because it has enough momentum that it won't go to zero. And we are starting to think in terms of percentage changes as far as the way investors are looking at the economy when maybe we want to look at levels and where we were pre pandemic. We've spent a lot of money. Now we come back down to where we were spending beforehand and that's going to look bad in comparison. But then you get a couple of quarters beyond that and you start to see growth again. So it may look like a recession in some of the returns on Wall Street but we may not get there in terms of the overall economy.

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What Does Snap's Profit Warning Signal for Growth?

Snap's profit warning sent shares in the Snapchat owner plunging a record 40%. What does this signal for other parts of the market? Bloomberg's Romaine Bostick and Mike McKee weigh in on Bloomberg Television. (Source: Bloomberg)

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