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The Estée Series: 2-Who will take on the company?

Complacency, poor performance and a series of profit warnings have made the Estée Lauder Companies lose two thirds of its value in two years. America’s biggest beauty group is perceived as a sitting duck waiting to be taken on, stock market investors say. The Estée Lauder Companies is the ideal target for a group such as LVMH or for an activist fund to come in, build up a stake and push for change to drive up the value of the shares, industry sources and investors say.

There is no evidence so far that one or more activist funds are building up a holding in the U.S. beauty giant, but many investors are betting on it happening. “At this depressed level, the stock could attract an activist investor or a potential buyer,” the manager of a major Canadian investment fund told Miss Tweed this week. “That’s why we’ve recently bought the stock.” The most obvious buyer is LVMH but a deal is not on the cards, sources close to the French luxury group said. At least not yet.

The world’s biggest luxury goods group is still digesting its purchase of Tiffany & Co. for which it paid $15.8 billion. Estée is worth $43 billion, three times the size of America’s best-known jeweler. LVMH has been admitting to investors that the integration of the U.S. jeweler had not been as smooth as hoped, investment firms say.

After LVMH completed the acquisition of the American jeweler in early 2021, within a month more than 200 senior managers left the New York-based company with golden parachutes, the equivalent of two years’ salary, several sources close to the group said.

“Some departures were quite expensive,” one told Miss Tweed this week. “This has put a lot of pressure on our management resources. LVMH’s talent pool is not endless. The group does not have the talent now to run Estée Lauder if it bought the company. Plus, some of its beauty brands are not worth that much anymore and some, like Clinique, work well mainly in the U.S.”

CULTURAL DIFFERENCES

Buying Tiffany has inoculated LVMH against big U.S. acquisitions for the foreseeable future, several people close to LVMH say. “Also, there are pretty important cultural differences between the American way and the French way and these have made integration all the more difficult,” one person close to the group said. LVMH’s investments in Donna Karan and Marc Jacobs have not been success stories. The group sold Donna Karan and DKNY, its more accessible line, in 2016 and has had to work hard to restructure Marc Jacobs, which lost money for years.

In recent days, LVMH has been telling fund managers that the integration of Tiffany & Co. was not as smooth as had been hoped, and the company’s performance was disappointing, analysts and investment firms say. The current downturn in luxury spending has also taken its toll, the reason that the company’s sales were under pressure, LVMH has told investors.

The French group did a great job in creating hard-hitting advertising campaigns with pop stars Beyoncé and Jay-Z to enhance the brand’s profile and desirability. It dominated headlines with the re-opening of its glitzy New York flagship store in June. The group has ditched the brand’s low-priced products and successfully promoted its new high jewelry collections. Now the hard work begins and that involves having to refit and relocate dozens of boutiques in the United States and elsewhere. Overall, it is proving to be a tough test for the Tiffany team, including CEO Anthony Ledru, and Alexandre Arnault, the 31-year-old son of the LVMH chairman and controlling shareholder, Bernard Arnault, who is executive vice-president of product and communications.

“LVMH did the easy fix first,” one luxury goods analyst told Miss Tweed on condition of anonymity. “Now comes the difficult part. It’s about working on collections and on the concept, the layout and location of boutiques.” Hence, LVMH is unlikely to come forward to buy Estée Lauder. Nor should investors bet on Kering or Richemont making a bid either. Neither of the luxury groups would have the money or the managers to run the company. A group of private equity firms could make a bid for the U.S. company, but that would be risky. They would face the same human resource problem.

In the absence of an obvious buyer, it is likely that one or more activist investors will build up, or are already building up, a stake in order to demand change. The slight rise in the company’s share price in recent days reflects that expectation, investors say. However, one wonders what pressure an investor will be able to put on the Lauder family since they own 35 percent of the company and 84 percent of voting rights. The activist funds Third Point and Bluebell Capital have made good profits trying to force Cartier owner Richemont to change its governance and strategy, as Miss Tweed reported last year. The reality is they did not get far. They faced resistance from the Richemont chairman Johann Rupert, who controls the Swiss group with 51 percent of voting rights.

On Friday, William Lauder, Leonard’s son and executive chairman of the company, restated his confidence in the current management and in the chief executive officer, Fabrizio Freda, who has been running the company for nearly 15 years and has pocketed hundreds of millions of dollars in the process.

“We are confident that the board, Fabrizio, and our company’s leadership, are taking the necessary measures to address near-term performance,” William Lauder said at the company’s annual shareholders’ meeting. “On behalf of the Lauder family, I want to reiterate to the board, our stockholders and our employees that we remain steadfast in our commitment to the long-term continuity of The Estée Lauder Companies as a family-controlled enterprise, because we see the enormous and exciting potential of this business.” However, company insiders say that behind the scenes there are disagreements between members of the Lauder family about keeping Freda on and about the company’s strategy. Leonard Lauder, 90, who officially retired from the board on Friday, leads the opposition and is in favor of hiring a new CEO, several internal sources said. His son William wants to keep Freda for now. At the AGM, Gary Lauder, 61, Leonard’s youngest son, a venture capitalist who was never involved much with the company, joined the board.

NEW CEO NEEDED

The Lauder family may not be willing to sell, but the minute they are LVMH might actually make a move, some analysts believe. However, one thing is certain: the company needs a new CEO and senior management team. Freda, who is 66, has become too focused on profitability and has not spent enough time and money on building the image and storytelling of the company’s brands, investors say. He has also let a grey market for the company’s products grow out of control in China. His priority is boosting sales, not building brand equity. “There’s been a progressive and steady pauperization of Estée Lauder’s brands,” said one senior manager who recently left the company. “But you cannot complain about it openly given the current corporate culture.” The strongest brands at Estée Lauder now are La Mer, Jo Malone London and Tom Ford. Most others have lost market share in recent years.

At Estée, everything is decided by three people, insiders say: Freda and executive group presidents Jane Hertzmark Hudis and Stephane de la Faverie, Freda’s right-hand man. Faverie is the manager who has received the most promotions in the past two years, they say. The affable 49-year-old French executive oversees many brands, including Jo Malone London and Aramis, on top of the Estée Lauder brand and niche perfume labels Editions de Parfums Frédéric Malle and By Kilian. Several internal sources at the company say Faverie has been groomed to replace Freda. That scenario appears less likely since Freda’s vision and credibility are being strongly questioned by the market.

Hertzmark Hudis, 63, is powerful in the company. Former staffers say she was the babysitter of Aerin and Jane Lauder, daughters of Ronald Lauder and granddaughters of founder Estée Lauder. A spokeswoman for the company denied this was the case. However, staffers say this is why she is so close to the family as she met them at a very young age. A protégée of Ronald’s brother Leonard Lauder, who ran the company for many years, she rose up the ranks and is now in charge of La Mer, Bobbi Brown Cosmetics, Tom Ford, Balmain Beauty, M.A.C., Clinique, Origins, Aveda and Bumble and bumble.

She is working on the launch of Balmain’s new line in September next year. Some industry analysts are concerned that future management upheavals could affect the much-awaited debut.

Jane Lauder, who is executive vice-president in charge of enterprise marketing and chief data officer, lost credit as a potential successor to Freda after having poorly managed Clinique. However, she is the second-biggest family shareholder of the company behind Leonard. Insiders at Estée Lauder say no-one in the Lauder family appears to have the right stuff to take over. Aerin, who launched her eponymous homeware and beauty brand in 2012, has not built a strong track record. Her Aerin brand never grew much beyond the United States and is not regarded as having a strong story behind it beyond that of its founder, a Lauder heiress and socialite. If the whole family finally comes to an agreement that Freda needs to go, it is likely that it will hire someone from outside the firm, industry analysts say.

PRESTIGE FRAGRANCES

An area in which the Estée company needs to boost its presence is fragrance. None of its brands are in the global top five, dominated by Chanel, L’Oréal’s Lancôme and LVMH’s Dior. In September, the company announced it would open a fragrance unit in Paris called the Atelier by the end of 2024. “The Atelier will further accelerate ELC’s strategic ambitions in luxury and prestige fragrances, supporting the Company’s existing enterprise-wide fragrance capabilities to help drive breakthrough innovation, speed-to-market, and artisanal quality at scale, leveraging synergies across the brand portfolio,” it said in a statement. Meanwhile, Coty has also been increasing its presence in Paris, moving the center of gravity from New York to the French capital. In September, the New York-listed company obtained a dual listing in Paris.

Over the years, the Estée company has closed or sold several poorly performing businesses. At the end of June this year, it did not renew its license with the brands Tommy Hilfiger, Donna Karan, DKNY, Michael Kors and Ermenegildo Zegna. In 2021, it closed the Australian cosmetics brand Becca and the Rodin olio lusso skincare line. In 2020, it discontinued the North America-focused cosmetics line Prescriptives. In 2019, it ended its license with Tory Burch and in 2016 with Italian fashion brand Marni, and in 2015 with Coach. You wonder how Estée Lauder is planning to regain lost territory in fragrance if it has shown that it was not able to successfully build the beauty and perfume business of some of America’s most important fashion brands. Even Tom Ford, its biggest success story to date, is poorly distributed, some industry sources say. Investors will have to make sure the company continues to invest in the Tom Ford brand, which it now owns, as well as in its retail network if it is to remain one of the main engines of the company’s future growth.

OpenAI investors push to reinstate Sam Altman as CEO

Efforts are under way to restore AI start-up’s co-founder to his old job just days after he was abruptly sacked by the board

OpenAI investors are working to get rid of the company’s board and reinstate Sam Altman as chief executive of the generative AI start-up, according to people with direct knowledge of the situation, in what would amount to a spectacular counter-coup they are confident could be concluded this weekend.

A group of investors including Microsoft and prominent venture capital firms, along with employees at the company, were exploring options to resolve the crisis, according to three people briefed on the discussions.

These options include removing the board of the non-profit that oversees OpenAI and reinstalling Altman, who was pushed out of the ChatGPT parent on Friday, and co-founder Greg Brockman, who quit the company hours later, sending shockwaves through Silicon Valley.

With the board and his backers at an impasse on Saturday night, Altman posted “i love the openai team so much” on X. Within an hour hundreds of current OpenAI employees — including interim CEO Mira Murati and chief operating officer Brad Lightcap — had liked or reposted the tweet, often echoing Altman’s sentiment.

“Since the minute [Altman was sacked] this has been in the works,” said one of the people involved in the effort to reinstate the former boss. Major investors in OpenAI, including Thrive Capital, Tiger Global and Sequoia Capital, have been in touch with Microsoft and with Altman over the weekend to explore possible next steps, according to the three people familiar with the discussions.

One of the people, a leading investor in OpenAI, is confident that they can dispose of the board and reinstate Altman and Brockman before the weekend is out. Investors are hoping that Altman would return to a company “which has been his life’s work,” and that Mira Murati, promoted from chief technology officer to interim chief executive on Friday, would stay at the company, added the person.

But other venture funds are hedging their bets, committing to support Altman whatever he chooses to do next, be that a return to OpenAI or launching a new venture, according to two venture fund investors.

Vinod Khosla, an early venture backer of OpenAI, said on Saturday evening that he wanted to see Altman back at OpenAI, “but will back him in whatever he does next”.

Microsoft, Thrive Capital, Tiger Global and Sequoia declined to comment. OpenAI could not immediately be reached for comment.

The board said it had removed Altman on Friday because he had not been “consistently candid” in his conversations with them.

Investors and employees could refuse further backing or quit the company in an attempt to force the board to reinstate him. A plan to sell as much as $1bn in employee stock, which was nearing completion, is also in the balance as a result of the division between the board and investors. Thrive Capital was set to lead that tender offer, which was expected to value OpenAI at $86bn.

The OpenAI board’s abrupt decision to oust Altman and demote Brockman on Friday has drawn attention to its unusual corporate structure and governance. That board oversees a non-profit entity that owns a for-profit company.

Unlike a typical for-profit, where fiduciary duties are owed to shareholders, OpenAI’s board is committed to a charter that pledges to ensure AI is developed for the benefit of all humanity.

“They hurt the company. In a real company there is a fiduciary responsibility. The first rule for [OpenAI’s] board is ‘do no harm’ . . . They caused the company immense harm,” said a person involved in efforts to reinstate Altman.

The board includes OpenAI chief scientist Ilya Sutskever along with independent directors Adam D’Angelo, the chief executive of Quora; technology entrepreneur Tasha McCauley; and Helen Toner from the Georgetown Center for Security and Emerging Technology.

OpenAI’s board has said nothing publicly about what caused the split with Altman beyond its statement on Friday. According to investors, tensions over the speed at which the former chief executive wanted to deploy powerful AI tools had stoked board concerns that the safety of those tools could be compromised. “They had an argument about moving too fast. That’s it,” said one of the investors.

Missouri jury finds in favor of plaintiffs as verdicts seesaw in trials

Bayer BAYRY 2.45%increase; green up pointing triangle faces a payout of $1.56 billion after a Missouri jury found in favor of the plaintiffs who blamed its Roundup weedkiller for causing their cancers.

The decision is the fourth in a row to go against Bayer during a roller-coaster five-year legal battle over Roundup, the world’s most popular weedkiller, which included nine straight victories for the company, as well as earlier losses. The cases represent tens of thousands of claims from farmers and gardeners.

The mounting charges from cases tied to the herbicide come against the backdrop of Bayer’s restructuring efforts. The overhaul could lead to the separation of its health business and its agriculture unit, which includes the U.S.-based Monsanto operation that developed Roundup. Analysts said how any Roundup-related liabilities are divided would affect the potential valuation of the two businesses.

Bayer maintains that Roundup and its main ingredient, glyphosate, is safe to use and has cited reviews by the U.S. Environmental Protection Agency and other regulators that have determined it doesn’t pose a cancer risk. The European Union said in recent days that it would extend glyphosate’s use for 10 more years.

Bayer has acknowledged that the legal status of Roundup litigation remains a hangover. “The challenge has been around some confusion about the safety of glyphosate,” Chief Executive Bill Anderson said recently at a conference in Washington, D.C. “We think the evidence is super clear, this is a very safe and very important agricultural chemical.”

Jurors in state court in Jefferson City, Mo., disagreed in a decision released Friday. They awarded the plaintiffs Dan Anderson, Jimmy and Brenda Draeger and Valorie Gunther a combined $61.1 million in damages and another $1.5 billion in punitive awards. The plaintiffs maintained that years of Roundup use in their gardens caused their non-Hodgkin’s lymphomas.

“We have strong arguments to get the recent unfounded verdicts overturned,” a Bayer spokesman said in an email.

Jay Utley, co-founder of Forrest Weldon, lead counsel for the defendants, said it was the largest financial award against Bayer among the Roundup suits. The court case was earlier reported by Bloomberg.

Bayer lost the first trial over Roundup’s alleged cancer risk in August 2018, shortly after the company completed its $63 billion acquisition of Monsanto, which developed Roundup as well as genetically engineered crops designed to withstand the herbicide.

Abstract

BACKGROUND

Monoclonal antibodies that target amyloid-beta (Aβ) have the potential to slow cognitive and functional decline in persons with early Alzheimer’s disease. Gantenerumab is a subcutaneously administered, fully human, anti-Aβ IgG1 monoclonal antibody with highest affinity for aggregated Aβ that has been tested for the treatment of Alzheimer’s disease.

METHODS

We conducted two phase 3 trials (GRADUATE I and II) involving participants 50 to 90 years of age with mild cognitive impairment or mild dementia due to Alzheimer’s disease and evidence of amyloid plaques on positron-emission tomography (PET) or cerebrospinal fluid (CSF) testing. Participants were randomly assigned to receive gantenerumab or placebo every 2 weeks. The primary outcome was the change from baseline in the score on the Clinical Dementia Rating scale–Sum of Boxes (CDR-SB; range, 0 to 18, with higher scores indicating greater cognitive impairment) at week 116.

RESULTS

A total of 985 and 980 participants were enrolled in the GRADUATE I and II trials, respectively. The baseline CDR-SB score was 3.7 in the GRADUATE I trial and 3.6 in the GRADUATE II trial. The change from baseline in the CDR-SB score at week 116 was 3.35 with gantenerumab and 3.65 with placebo in the GRADUATE I trial (difference, –0.31; 95% confidence interval [CI], –0.66 to 0.05; P=0.10) and was 2.82 with gantenerumab and 3.01 with placebo in the GRADUATE II trial (difference, –0.19; 95% CI, –0.55 to 0.17; P=0.30). At week 116, the difference in the amyloid level on PET between the gantenerumab group and the placebo group was –66.44 and –56.46 centiloids in the GRADUATE I and II trials, respectively, and amyloid-negative status was attained in 28.0% and 26.8% of the participants receiving gantenerumab in the two trials. Across both trials, participants receiving gantenerumab had lower CSF levels of phosphorylated tau 181 and higher levels of Aβ42 than those receiving placebo; the accumulation of aggregated tau on PET was similar in the two groups. Amyloid-related imaging abnormalities with edema (ARIA-E) occurred in 24.9% of the participants receiving gantenerumab, and symptomatic ARIA-E occurred in 5.0%.

CONCLUSIONS

Among persons with early Alzheimer’s disease, the use of gantenerumab led to a lower amyloid plaque burden than placebo at 116 weeks but was not associated with slower clinical decline. (Funded by F. Hoffmann–La Roche; GRADUATE I and II ClinicalTrials.gov numbers,

Co-founder’s shock firing has exposed tensions at the generative AI start-up behind ChatGPT

Sam Altman was pushed out of OpenAI over a “breakdown in communications” with the company’s board rather than financial impropriety or malfeasance, according to an internal memo sent to staff at the ChatGPT parent and generative AI pioneer.

Altman’s abrupt firing as co-founder and chief executive of OpenAI on Friday shocked employees and partners of the company, including its main backer Microsoft.

His departure along with other senior figures at the company has thrown into doubt the company’s efforts to sell up to $1bn in employee stock and secure an $86bn valuation, and has exposed tensions within the world’s most prominent AI start-up.

The board has so far provided little explanation of its rationale for sacking the 38-year old beyond issuing a statement on Friday saying Altman had not been “consistently candid”.

In a memo sent to OpenAI employees on Saturday and seen by the Financial Times, OpenAI’s chief operating officer Brad Lightcap wrote: “We can say definitively that the board’s decision was not made in response to malfeasance or anything related to our financial, business, safety, or security/privacy practices. This was a breakdown in communication between Sam and the board.”

Lightcap added that the announcement of Altman’s firing “took us all by surprise” and that remaining executives at the company were “fully focused on handling this, pushing toward resolution and clarity, and getting back to work”. The contents of the memo were first reported by Axios. OpenAI did not immediately respond to a request for comment.

Neither OpenAI nor Altman has elaborated on how communications broke down, but tensions have been brewing within the company. According to one person with knowledge of the situation, there were concerns at board level about Altman’s efforts to raise as much as $100bn from investors in the Middle East and SoftBank founder Masayoshi Son to establish a new microchip development company to compete with Nvidia and TSMC.

There was also a widening schism between advocates of Altman’s efforts to rapidly roll out the powerful technology the group has developed and turn a company founded as a non-profit into a commercial juggernaut, and those who wanted to emphasise safety over speed, according to people familiar with the matter.

Speaking to the Financial Times earlier this month, Altman said he was motivated by “a moral imperative” to develop technology which could dramatically boost “everyone’s quality of life”.

“I think for the most part [executives of AI companies] are taking the risks seriously and sort of wanting to do the right thing,” Helen Toner, an OpenAI board member and director of strategy at the Georgetown Center for Security and Emerging Technology, told the Financial Times in an interview last month.

“At the same time, they’re obviously the ones building these systems. They’re the ones who potentially stand to profit from them,” she added. “So I think it’s really important to make sure that there is outside oversight not just by the boards of the companies but also by regulators and by the broader public. So even if their hearts are in the right place we shouldn’t rely on that as our primary way of ensuring they do the right thing.”

Toner remains on OpenAI’s board, alongside Ilya Sutskever, who co-founded OpenAI with Altman and Brockman and is the company’s chief scientist. Since July, Sutskever has led the team at OpenAI tasked with ensuring superintelligent AI can be deployed safely.

At the same time as Altman was sacked, Greg Brockman, another co-founder, was stripped of his position as chair of the board. Later on Friday, he announced he was quitting the company altogether. A trio of senior researchers also left the company late on Friday, according to reporting in The Information.

Mira Murati, formerly chief technology officer, has stepped up to lead the company on an interim basis. In an interview with the Financial Times in June this year, she said: “Our mission is to get to artificial general intelligence and figure out how to deploy that safely. And so we’re always very careful not to lose sight of that.” 

Derrière la bâtisse idyllique de ce château de contes de fées se cache une enquête pour blanchiment d'argent particulièrement obscure. Selon le journal Le Monde, le château de Nieuil, en Charente, a été saisi par la justice, dans le cadre d'une enquête en cours du parquet de Paris depuis octobre 2021 sur Laurent Lévy, le PDG d'Optical Center, groupe propriétaire du bâtiment. L'homme est classé par Challenges comme la 411ème fortune de France, une évaluation qui pourrait être revue à l'issue de l'enquête pour fraude fiscale et blanchiment. La saisie pénale préventive du château aurait été ordonnée en juillet.

On soupçonne Laurent Lévy d'avoir créé un système de fausses factures, pour réduire artificiellement les profits d'Optical Center en France. L'entreprise spécialiste de la franchise, aux 630 magasins, réalise un chiffre d'affaires annuel de 885 millions d'euros, selon le magazine LSA.

170 hectares de bois

Après plusieurs mois d'enquêtes, la justice française a donc décidé de saisir de manière préventive les 31 millions d'euros d'avoirs du groupe dans l'hexagone. Il faut dire que, selon Médiapart, l'Etat français aurait été lésé de 85 millions d'euros entre 2018 et 2022. Le château aux 170 hectares de bois, dont la valeur est estimée à plus de 5 millions d'euros, fait donc partie de ces biens, saisis de manière préventive.

Le Monde rapporte toutefois que les travaux entrepris dans le bâtiment n'ont pas été arrêtés pour autant : piscine, terrain de foot, de padel... L'objectif est de faire de l'endroit un lieu de loisir pour les salariés du groupe. Les travaux font d'ailleurs grincer des dents habitants et organismes locaux, soucieux de la préservation du patrimoine. Pas de quoi désarçonner Laurent Lévy, qui aurait même organisé une grande fête nocturne en juillet dans le château.

Un PDG installé en Israël

Lorsqu'il n'est pas à s'occuper de son château, le très discret PDG vit en Israël. "Mon installation en Israël en 2005 m’a permis de prendre du recul sur l’activité, de profiter du dynamisme de ce pays et d’augmenter mon niveau de spiritualité", expliquait-il à Challenges en 2021, avant que l'enquête ne soit ouverte.

Il continuait alors : "J’ai créé la place de la musique à Jérusalem avec des restaurants et un musée. Je consacre 80% de mon temps à Optical Center et 20% à l’immobilier, l’hôtellerie, la culture, le sport." Le château de Nieuil fait donc partie des 20% restant. Et Laurent Lévy semble bien décidé à continuer à s'en occuper, malgré la saisie de la justice qui l'empêche de le mettre en vente.

A resilient labor market and healthy household finances should keep a recession at bay, even if the postpandemic spending boom loses a bit of its vigor.

After two years of sustained spending, rising interest rates, and punishing inflation, American consumers are still on a roll. Consumer outlays account for about 70% of the U.S. economy, and the Covid-era spending spree has kept gross domestic product on a path of surprisingly strong growth. Real GDP grew nearly 5% in the third quarter, according to early estimates, the best showing since the fourth quarter of 2021.

After two years of sustained spending, rising interest rates, and punishing inflation, American consumers are still on a roll. Consumer outlays account for about 70% of the U.S. economy, and the Covid-era spending spree has kept gross domestic product on a path of surprisingly strong growth. Real GDP grew nearly 5% in the third quarter, according to early estimates, the best showing since the fourth quarter of 2021.

The spending boom is bound to lose some vigor as savings erode and higher rates bite: Real personal-consumption expenditures are on track to rise 2.2% this year, according to FactSet estimates, below last year’s 2.5% growth rate and 8.4% growth in 2021. Yet relatively healthy household finances, a resilient labor market, and substantial housing wealth suggest that consumers still have plenty of firepower and that the U.S. economy will avoid a recession next year.

“The consumer has the potential to keep the U.S. economy afloat for quite some time,” says Olu Sonola, head of U.S. regional economics at Fitch Ratings.

Jobs and Spending

A healthy labor market has been the driving force behind consumer spending, including a 3.1% annual jump in retail sales in the past three months. With the unemployment rate at 3.9%, near historic lows, the majority of working-age Americans are earning regular paychecks. “Consumers are spending so much because of what’s happening in the labor market,” says Wendy Edelberg, director of the Hamilton Project at the Brookings Institution.

The Covid-19 pandemic, which first hit the U.S. in February 2020, sent much of the economy into a tailspin, including the labor market. Yet in 2021, with Covid vaccines on the market and government stimulus flowing, growth in nonfarm payrolls exploded upward to average a gain of 605,000 a month.

Although job growth slowed last year to a monthly average gain of 399,000, that was still more than three times the estimated level of 100,000 monthly gains needed to keep the economy on an even keel. Job growth has normalized further this year, but remains elevated at a three-month moving average of 204,000 as of October.

Job openings, meanwhile, are still elevated relative to prepandemic levels, with the Bureau of Labor Statistics reporting 9.6 million vacancies in September. That’s down from the high of more than 12 million openings in March 2022 but above the 6.7 million vacancies recorded at the end of 2019. There are still 1.5 jobs available for every unemployed person seeking work.

Plentiful openings and low unemployment continue to put upward pressure on worker pay. Compensation costs for civilian workers climbed 4.3% in the third quarter on a year-over-year basis, according to the latest Employment Cost Index. While that is below the 5.1% peak growth rate recorded in the second quarter of 2022, wage gains have outpaced inflation since May 2023. Since wages account for the bulk of Americans’ total income, pay gains have an outsize impact on financial security and spending power.

Given falling birthrates, lower immigration, and the growing number of baby boomers entering retirement, many labor economists believe that tight employment conditions will persist. The BLS projects that total employment will grow only 0.3% annually over the next decade, far below the 1.2% annual growth rate recorded from 2012 to 2022.

“As long as you don’t have enough children and immigrants coming in—and if you don’t have policies that help parents stay in a labor market, and especially women—then you’re going to be challenged with labor as the baby boomers retire,” says Dana Peterson, chief economist at the Conference Board.

Household Finances

High spending levels haven’t yet compromised most household balance sheets, according to recent data from the Federal Reserve Banks. In part, that’s because Americans’ wealth grew by 37% from 2019 to 2022, according to the Fed’s latest Survey of Consumer Finances.

Rising rates of homeownership, an increase in home values, a rising stock market, and higher incomes all helped drive up household net worth. More significantly, consumers got a helping hand from the government in the form of an unprecedented $814 billion of stimulus payments supplied to U.S. households to combat the economic fallout from the Covid pandemic. As a result, households’ real median net worth grew to $192,900 by the end of 2022, up from $141,100 in 2019—the largest three-year increase on record.

In all, Americans generated $2.1 trillion in excess savings during the pandemic, estimates the Federal Reserve Bank of San Francisco. Many households further improved their financial footing by taking advantage of low interest rates and extra savings to pay down debt. For example, the share of credit-card holders who carried a balance declined from 50% to 45% from April 2020 to December 2021, according to the U.S. Government Accountability Office. And about a third of outstanding home mortgages were refinanced in this period.

Although household indebtedness has risen since then, only 3% of Americans’ outstanding debt was in some stage of delinquency at the end of September, according to the

Americans Spent Big. Now Overdue Bills Are Rising.

Both the overall level of household debt and the share of those that struggled to make timely payments increased last quarter.

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latest data from the Federal Reserve Bank of New York. By comparison, delinquency rates hit a record of nearly 12% in 2009 and stood at 4.7% at the end of 2019.

Moreover, consumers used an average of only 24.1% of their available credit-card allowances as of the third quarter, still below the prepandemic level of 24.6%, according to TransUnion. Both modest delinquency rates and low credit utilization are key indicators of financial health and spending power. Current measures of consumer debt and borrower distress “don’t look worrying,” Edelberg says.

Just 9%, or about $190 billion, of excess pandemic savings remained as of this past June, the San Francisco Fed estimates. Yet consumer spending has persevered. In addition to the aforementioned job-market strength, cooling inflation has helped reverse some of the previous loss of purchasing power. In particular, gasoline prices have fallen this year, while food-price inflation has decelerated.

Confidence Problem

Ironically, Americans’ confidence in their personal financial situation and the broader economic outlook has been persistently grim in recent years, according to various sentiment surveys. Based on the University of Michigan’s Consumer Sentiment Index, Americans’ confidence has fallen sharply since the start of the Covid pandemic and now stands at the same levels as those recorded during the 2008-09 financial crisis.

While confidence readings hinted at more optimism earlier in the summer, the index has trended down for the past four months. “There are a lot of things consumers are worried about, but definitely, inflation and higher interest rates are affecting their mood,” Peterson says.

A poor outlook typically translates into conservative spending patterns. Yet in another irony of the postpandemic era, consumer sentiment hasn’t been an accurate predictor of spending trends.

To be sure, some Americans—particularly lower- and middle-income households—are pulling back on purchases, citing rising financial stress. Allie Kuopus, a media-relations coordinator in Illinois, frets about rising interest rates and higher prices for everyday goods as she works to square her monthly budget, which must also cover student loan payments, car payments, and emergency veterinary bills.

Even after taking on a second job as a CrossFit coach and frequently dog-sitting, Kuopus says she has balances on almost all of her credit cards, a situation she calls “very stressful.” Bank of America reports that credit-card spending among people earning less than $50,000 a year showed almost no growth in October after rising 1.75% year over year in September.

But that slowdown might not have much of an impact on overall trends because spending is concentrated largely among higher-income households that typically earn more than $200,000 a year. High earners have accounted for 39% of total consumer spending since 2004, according to Morgan Stanley.

Housing wealth and white-collar employment typically drive confidence and spending among the nation’s highest earners, whose real disposable personal income is still above prepandemic levels on a per capita basis. A 40% rise in national home prices and a 30% gain in the stock market from pre-Covid levels have both helped to fatten their accounts.

Saving and Splurging

That’s not to say spending won’t moderate in coming months, or that more-ominous headwinds don’t loom. KPMG forecasts that consumer spending will average 1.6% growth next year, down from an estimated 2.8% this year, with spending expected to be weakest in the second quarter of 2024. The firm expects the Federal Reserve to begin cutting interest rates in June, easing the cost of purchases made on credit.

Fitch economists predict that spending will grow only 0.6% next year, as monetary tightening increasingly weighs on consumer demand. But it sees real personal-consumption expenditures rebounding in 2025 to healthier annual growth rates of nearly 2%.

Fitch’s Sonola projects that a pullback in spending on durable goods will account for a significant portion of any spending slowdown as consumer appetites wane. The current level of inflation-adjusted spending on durable goods is higher than the trend seen in the five years preceding the pandemic, according to research from the Federal Reserve Bank of Richmond, while the share of durable-goods spending relative to overall consumer spending is one percentage point higher than in 2019. This has been driven, in large part, by pent-up demand for vehicles after the supply-chain problems and chip shortages of the early 2020s.

High interest rates, too, will cause many Americans to think twice about buying items that need financing, Sonola projects. Just ask Kuopus, who recently had to shell out $24,000 for a used Toyota Corolla after the brakes on her Honda Civic gave out. “The interest rate was disgusting,” she says, noting that even with a significant down payment and a six-year lease, she is financing the purchase at a rate above 8%.

While spending on durables might slow, services spending is projected to remain buoyant, in part because consumer attitudes have shifted since the pandemic. Since June 2021, growth in services spending has surpassed growth in spending on goods, and Deloitte expects that trend to persist. The firm forecasts that personal-consumption expenditures for services will rise 3.1% this year and 4.7% in 2024.

Many consumers probably will find themselves splurging on some things while cutting back on others. Imani Reed is one. The New Jersey resident has pared back expenses for everyday needs to afford travel and concert tickets. Reed says she has “absolutely no regrets” about having shelled out more than $1,600 to see Beyoncé in concert in Vancouver this past summer, even after a canceled flight unexpectedly added $450 to the trip’s price tag.

Given that wealthier Americans are the primary drivers of consumer spending, however, the question is what might get them to cut back. A labor shock seems unlikely, although it can’t be ruled out, especially given the high amount of high-yield corporate debt taken on in 2021 and early 2022 and now set to be repriced in 2024. When companies are forced to refinance at higher interest rates, that can lead to layoffs as they seek to maintain profit margins. The market easily shook off job cuts in the tech sector in 2023 after years of frenzied growth, but more-widespread losses could be harder to ignore.

Beyond a jobs recession—and a broader economic one—the answer isn’t clear, especially if the Fed effectively declares “mission accomplished” on taming inflation and begins cutting interest rates next year. That scenario is the consensus view on Wall Street, although there is widespread debate about the timing of such cuts.

So far, the U.S. economy has escaped a hard landing even in the face of sharply rising interest rates, while a soft one has been experienced unevenly. Much could change in 2024 as the Fed fine-tunes monetary policy, the U.S. faces tough spending decisions and a presidential election, and geopolitical tensions grow.

Still, “as long as people have jobs, they will continue to spend,” Sonola says.

See you at the mall.

Sam Altman, the recently ousted CEO of OpenAI, has been telling investors that he is planning to launch a new venture, according to a person familiar with the matter. Former OpenAI president Greg Brockman is expected to join the effort and the project is still in development, the person said.

Altman was fired suddenly by the OpenAI board of directors on Friday. Shortly after, Brockman—who was removed as chairman of the board—resigned. Three OpenAI leaders have since quit and people close to the company expect several more exits in the coming days. Many of those employees could join a new venture with Altman and Brockman.

THE TAKEAWAY

• Altman, who was fired by OpenAI board Friday, already planning new venture

• Greg Brockman, who quit after Altman’s firing, expected to join Altman’s effort

• Employees who are leaving OpenAI could join Altman’s new venture

Altman had already been working on new projects, in addition to OpenAI. Altman had recently held discussion with Jony Ive, the renowned designer of the iPhone, about working together on a new AI hardware device, The Information previously reported. The pair had met with SoftBank CEO and investor Masayoshi Son about the potential venture. Whether the new venture involves Ive or Son could not be learned.

This was another pretty strong week as far as big-money raises go, especially considering the coming holidays. There was a handful of nine-figure deals — including a huge one for a manufacturing company using generative AI and 3D printing — and lots of money again going to biotech firms.

1. Divergent Technologies, $230M, manufacturing: Divergent Technologies raised a massive $230 million Series D to accelerate the commercialization of its digital manufacturing system that uses generative AI and 3D printing. The round was led by Hexagon AB, which invested $100 million of the $230 million total. New and existing institutional and family office investors also participated in the round. The Los Angeles-based firm has developed a software-hardware production system for industrial digital manufacturing that replaces traditional design, manufacturing and assembly solutions. Divergent’s system uses in-house-developed AI-driven generative design software and 3D printing to create the products and structures used in a variety of industries, including automotive, aerospace and defense sectors. Divergent already works with automotive customers such as Aston Martin and Mercedes-AMG. In the aerospace and defense industry, the company is actively working with six U.S. government contractors. Just last month, another 3D printing startup raised significant cash. 3D metal-printing startup Seurat Technologies locked up a $99 million Series C led by NVentures — Nvidia’s venture capital arm — and Capricorn’s Technology Impact Fund.

2. RefleXion Medical, $105M, biotech: As usual, biotech was hot this week, especially if the company is trying to figure out ways to fight cancer. Hayward, California-based RefleXion Medical announced the initial close of a $105 million equity raise led by The Rise Fund, TPG’s multisector global impact investing strategy (we’ll be hearing from them again on this list). The fresh cash will be used by the company to extend commercialization of its therapy for treating all stages of indicated solid tumor cancers, including metastatic disease. Founded in 2009, the company has raised $675 million, per Crunchbase.

3. Petvisor, $100M, software: Orlando, Florida-based Petvisor locked up a big $100 million-plus round led by Apax Digital Funds to help make veterinarians’ lives a little easier. The software startup equips veterinary practices with mobile-enabled tools which help with communication and client retention. Petvisor’s tools are used by more than 10,000 veterinary clinics and 400 grooming facilities. Pet parents can be demanding when it comes to their animal’s health, so it makes sense vets would be into using anything that helps keep lines of communication open.

4. (tied) MBrace Therapeutics, $85M, biotech: Yet another cancer-fighting biotech to raise big this week. San Diego-based MBrace Therapeutics closed an $85 million Series B led by TPG’s Life Sciences Innovations fund and The Rise Fund (see, I told you). MBrace is developing a drug that targets a receptor found in multiple cancers including, breast, non-small cell lung, colorectal, gastric and pancreatic. Founded in 2020, MBrace has raised $110 million, per the company.

4. (tied) Cytovale, $85M, health diagnostics: San Francisco-based Cytovale, a medical diagnostics company focused on early diagnosis of immune-mediated diseases, raised an $84 million Series C funding led by Norwest Venture Partners. The company plans to use the cash infusion to roll out its IntelliSep rapid sepsis diagnosis test to more hospitals and health systems. The test can deliver results within 10 minutes. Sepsis is the third leading cause of death in U.S. hospitals. Founded in 2013, the company has raised $129 million, per Crunchbase.

6. (tied) Forward, $75M, health care: San Francisco-based health tech startup Forward raised $100 million in funding from the likes of Khosla Ventures and Founders Fund. The startup has created “CarePods,” a self-contained, AI-powered doctor’s office which will be located in malls and office buildings. The round included 25% of debt. Founded in 2016, the company has raised $325 million, per Crunchbase.

6. (tied) Imprint, $75M, finance: New York-based Imprint, a provider of co-branded credit cards for brands, locked up a $75 million Series B led by Ribbit Capital. Founded in 2020, the company has raised $127 million, per Crunchbase.

8. Element Energy, $73M, battery: Menlo Park, California-based battery management tech startup Element Energy closed an $111 million capital raise made up of a $73 million Series B equity investment and a $38 million debt facility. The Series B was co-led by an unnamed clean energy generation company in the U.S. and Cohort Ventures, according to the company. Founded in 2019, the company has raised nearly $147 million, per Crunchbase.

9.  Halio, $70M, manufacturing: Hayward, California-based Halio, which created smart glass for office buildings to optimize heat and light, locked up a $70 million round from SKC. Founded in 2010, the company has raised nearly $400 million, per Crunchbase.

10. Eyebiotech, $65M, biotech: New York-based Eyebiotech, a clinical-stage ophthalmology biotech firm developing therapies for eye diseases, closed a $65 million extension to its Series A — bringing the total raised to date to $130 million. New investors Bain Capital Life Sciences, Omega Funds and Vertex Ventures HC joined the round. Founded in 2021, this is the company’s first outside raise, per Crunchbase.

Divergent’s round was big, but not the biggest this week.