Jim Cramer: This is what I learned from the real first week of earnings season
"Simply stated, we're in a freight recession." That line, uttered last Monday by Shelley Simpson, president of J.B. Hunt (JBHT), the fourth-largest trucking company in the United States, was the most memorable of the real first week of earnings season. The line that preceded it — " we're in a challenging freight environment where there is deflationary price pressure for an industry that continues to face inflationary cost pressures " — told you the tale of a lack of profitability among so many companies that don't have much brand differentiation. When I listened to J.B. Hunt's post-earnings conference call with investors and analysts, I found myself wondering: Does the Federal Reserve know to pay attention to the people who have the best grip on the U.S. economy? If so, it would know that we're dealing with much more than a freight recession. After the Silicon Valley Bank (SVB) debacle in March, we have a regional bank recession, where companies are afraid to lend because they fear the scrutiny for making the wrong types of loans. I went through a boatload of earnings calls and they spent most of their time explaining why they have enough capital to stay in existence — not that they have enough capital to grow business or buy back stock. The discrepancy between the large banks, which were incredibly strong, and small-to-midsize banks is extraordinary. Or as Morgan Stanley (MS) CEO James Gorman on Wednesday said, "We are not in a banking crisis, but we have had, and may still have, a crisis among some banks." The Club holding took in a staggering $110 billion for the quarter , representing an annual growth rate of 10%. But you can bet it came out of the hide of smaller banks that are desperate to hold on to deposits, so desperate that they don't want to loan. When you combine what J.B. Hunt's Simpson said with the lack of lending by regional banks, you get a feeling that March was a radical moment for the U.S. economy: In like a lion, out like a slaughtered lamb. Some companies had extraordinary quarters last week. Procter & Gamble (PG), first without equals, demonstrated that it had some pricing power across all brands. This enabled the maker of Tide and Pampers to take up prices and lose only a little volume, netting out to 7% organic growth. P & G's brands carried the day and did so in a remarkable way: a trade up into what might be a recession. Just one of many anomalies in this moment. But Club name P & G spoke for almost all of the companies I listened to when it said raw and packaging material costs, inclusive of commodities and supply inflation, have largely stabilized over the last few months, but will remain a significant headwind versus the last fiscal year. Based on current spot prices and latest contracts, P & G estimated a $2.2 billion headwind from commodities. Wages and benefits will be up year over year, too. In other words inflation will be tamer and wages will grow less. But both will still be higher, although not as high as expected by analysts. It's not enough to offset the immense deflationary pressure emanating from the regional banks and the freight recession described by J.B. Hunt. I like to look at the mosaic we are handed because it is more predictive than the idle, and sometimes inane, consensuses that we are stuck with for readings like the consumer price index or the March report on personal spending and income out this Friday . The mosaic shows that the slowdown is real. This is encouraging when it comes to the Fed's inflation-fighting efforts. This version of what I call "growth erosion" will stay the claw of the hawks. In particular, and although she is a non-voting member, Cleveland Fed President Loretta Mester simply can't remain as adamant for the need to stamp out inflation simply because she is from Ohio, where regional KeyBank dominates. All of the voting members are in tune with what local bankers are thinking. They are the most likely sources of information and intel. And there's more fear than most expected. The reverberations were incredibly positive for the haves — JPMorgan Chase (JPM) and then Club holdings Wells Fargo (WFC) and Morgan Stanley (MS) fared best. But the regionals are still in a post-SVB crisis. Mixed messages Nevertheless, if you monitor the biggest sources of inflation, the ones that the Fed regards as most intractable, there were definitively mixed messages. Let's tackle them one by one. 1. Wages remain a big issue. Companies are still dealing with a post-Covid world of retirees, quitters and the like who are drawing down savings. Their savings may be running out — it's not clear yet from the banks, where the deposits are still abnormally high — but not at a pace that can grow the workforce fast enough. The gains in deposits are real. Bank of America's Brian Moynihan shared with me the immense gains for deposit holders. Cash in accounts of $2,000 to $5,000 pre-pandemic are now holding $13,000 and those with $5000 to $10,000 now have $21,500. Given what I would regard as acute lack of spending on goods, you can see that there's no rush for workers to come back. We know a select group of people are spending on vacations and nights out. American Express (AXP) reports a 39% increase year over year in that spending category. The fact is wages can't be reined in until more people rejoin the workforce. The firings in the technology sector just aren't consequential as there are multiple firms bidding for that talent from the Big Tech companies that over-hired during the pandemic. The firings in consulting aren't meaningful. Bed Bath & Beyond (BBBY) joining David's Bridal and Party City in the dust bin of retail is flat out meaningless. 2. Housing's just not coming together. D R Horton (DHI) had an amazing quarter last week. While the nation's largest homebuilder did have to offer price concessions in some locations, the overwhelming number of homes sold seemed full price, despite a very big jump in mortgage rates. We can't build enough units to sate demand. Before it was because of supply chain and labor issues. Supply chain problems are winding down and labor's not as big an issue. But now we hear far more about how municipalities are making things tougher to build large planned urban developments. It's an odd moment. Nobody wants to finance or build commercial real estate and there's tons of money to buy homes but not enough lots to build on because of red tape. The lack of new homes is reverberating in the rental market. New homes do not impact the consumer price index, just rentals, and while some places are seeing rental stabilization it's just not enough to get prices down. 3. We don't know enough about autos yet. But Tesla (TSLA) CEO Elon Musk is making it difficult for auto companies to raise prices on select models. He's not Henry Ford, but he can make a difference. 4. Oil needs to drop more. Despite the drop in crude of late, it would be immensely meaningful to the Fed it fell further still as it is a linchpin to a lot of building blocks. Natural gas pricing, which is through the floor, hasn't done the trick that I would have expected. Put it all together and we have a decent and orderly decline in commodities, plus pockets of recession a la J.B. Hunt, along with the possibility of a somewhat dramatic decline in lending to commercial real estate, and perhaps autos and housing—the two most important loan books for regionals — all working in favor of the end of the tightening cycle. But wages and rents? Wrong direction still. Our portfolio certainly works in this environment. That's easy to say, perhaps, in the wake of earnings from Procter & Gamble, Wells Fargo and Morgan Stanley. Still, moderating wages and a peak in rents — arguably we have that now — aren't enough. We need an actual rollback in rents or the Fed can't be done. I just have to wonder: Do we need wages to go down via mass firings, and rents to go down because housing is levered to unemployment as much as mortgages? Let's just hope the recession stays with freight. Another tightening could tip the balance toward a spread of the economic erosion and not enough toward a potential rollback in inflation. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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A J.B. Hunt Transport Services tractor-trailer. Luke Sharrett | Bloomberg | Getty Images