Hit the Road Jack
Memorial Day is a day for remembering fallen U.S. military personnel who served in the United States Armed Forces. It is also considered to be the unofficial beginning of summer. A heatwave on the East Coast is a reminder of that. Right now, it looks like Americans are determined to keep their Memorial Day travel plans, even if they are paying more for fuel to get to their destinations. AAA projects that 45 million people will travel at least 50 miles from home over the five-day Memorial Day weekend starting Thursday. That’s up 0.4% from last year and a new Memorial Day record (we seem to hear that every year!). It’s also up a healthy 5% from the number of people who traveled over the 2019 holiday weekend before the pandemic upended travel trends. Gasoline is now averaging over $4.50 per gallon, up from $3.17 a gallon last Memorial Day and the highest since June 2022 after Russia invaded Ukraine. Nevertheless, 87% of travelers are expected to drive despite the noticeable rise in gasoline prices since the end of February.
Americans have cumulatively spent about $45 billion more on gasoline and diesel during the war with Iran than they did during the same period a year ago according to a recent analysis. The tax law passed last year provided over $100 billion in relief this year, with average tax refunds up 11% and providing some offset. However, if gasoline prices stay near their current levels through 2026 it is estimated that Americans will shell out $172 billion more than they did last year. That will more than eat into those higher tax refunds.
Planes, Trains and Automobiles
Another 3.66 million people are flying to their destinations, a 0.3% gain from 2025. Because most people booked their flights before the Iran war, ticket prices don’t yet reflect the rise in flight costs, including the jump in the price of jet fuel. An airline industry group, Airlines for America, says carriers have been working to offset soaring jet fuel prices and reduce the impact on passengers ahead of what is expected to be an especially busy summer travel season because of the FIFA World Cup games and America’s 250th anniversary celebrations. United Airlines# said Tuesday that it expects to serve about 53 million travelers this summer, about 3 million more than last year. The company said demand is particularly strong for destinations tied to events such as a total solar eclipse in Europe, international soccer matches and major global concert tours.
Airfares have risen over 20% from last year, the sharpest annual increase since February 2023, according to the last consumer price index. As for those not traveling by car or plane, (estimated at about 2.2 million people in the U.S.), many will be taking buses, trains, or cruises. This figure is 5% higher than a year ago. Industry trade group Cruise Lines International Association projected in April that 38.3 million passengers will take ocean cruises this year, up 4% from last year’s record level. In Bank of America’s Summer Travel Outlook, 30% of respondents said they will not change their summer travel plans because of higher gas prices, but others are considering taking fewer trips or cutting back on accommodations or other costs.
Consumer Re-Stocking
Several consumer related companies have reported first quarter earnings recently, providing a gauge of how consumers are dealing with higher gas prices.
Luxury homebuilder Toll Brothers# reported strong results last night and raised guidance for the year. Toll Brothers reported a revenue decline of 8% over the prior year and an earnings decline of 22% as margins compressed on 14% fewer homes delivered. However, Toll raised guidance for the year as average home prices increased to over $1 million and home orders increased 7% in units. 30-year mortgage rates at 6.4% may not be as impactful for higher-end home sales, but this is actually down from a 6.8% rate a year ago.
Home Depot#, the world’s largest home improvement retailer, reported a sales increase of 4.8% from the first quarter of fiscal 2025. Guidance for the year is for more of the same after a pickup in early May. Competitor Lowes# delivered a small sales increase for the first quarter, driven by professional sales, appliances, and a strong start to the spring season. Sales growth guidance for the year remains unchanged at 0-2%. Retailer Target# reported better-than-expected quarterly earnings this morning and raised its revenue guidance for the year. Target reported a sales increase of 6.7% from a year ago and now expects net sales growth of about 4% for the year. Not too shabby.
Big energy returns bolstered a blockbuster first quarter corporate-earnings season and added momentum to the artificial-intelligence-led rally that has pushed stock markets to records. Bonds sold off across the board in recent days on fears that inflation will force central banks to ratchet up interest rates. However, the global bond selloff is taking a breather today. Consumers may be spending like there is no tomorrow, but bond markets are worried about higher inflation. In the meantime, stock market futures are indicated higher this morning. Have a safe and reflectful Memorial Day.
Singer and actress Cher turns 80 today, Actor Timothy Olyphant is 58, and Rapper Trevor George Smith. Jr. (Busta Rhymes) turns 54.
Christopher Crooks, CFA®, CFP® 610-260-2219