Your Next Uber Could Be The Bus

People are thinking twice before opening that ride-share app on their smartphones.

The practice isn’t going anywhere, but the slow pace at which ride volumes have recovered from their pandemic depths is the latest sign the industry might not become as pervasive as once hoped. As dreams of world domination fade and investors watch the bottom line, the cost of that ride might be pushing some potential customers to more economical forms of transportation.

Lately, market leader Uber Technologies has moved beyond the service that made its name a verb. According to its 2022 investor day deck, Uber is in 72 countries. It added Eats to deliver food, and then expanded that to include convenience, alcohol, diapers and much more. It is now adding taxi partnerships and travel, among other things. Soon, you will be able to hail your own private party bus.

These additions are outwardly pitched as a way for Uber to aggressively build a super app from a position of strength. They are arguably just as defensive. If investors once wanted quantity, they now want quality. As Chief Executive Dara Khosrowshahi wrote recently in an internal email: “In times of uncertainty, investors look for safety…we need to show them the money.”

The economics of ride-hailing have changed. Platforms like Uber and Lyft for years grew through subsidizing the cost of rides to win market share from other forms of transportation, as well as from one another. Between 2016 and 2021, Uber burned an average of nearly $3 billion annually.

But with investors now focused on pocketing cash rather than splashing it around, broad subsidies are no longer a winning strategy. And that discipline comes at a time of rising costs. Labour laws, competition and a surge in vehicle and pump prices have meant ride-share drivers need to be paid more. The combination of those costs and investors’ demands for profit and cash flow means postpandemic ride-hailing may never be as affordable as it used to be.

Nationally, average ride-hailing pricing in April was already up nearly 39% from where it was at the same time in 2019, YipitData shows. Some of that has to do with longer rides consumers are now taking. But even on a per kilometre basis, pricing was up over 27%. In sprawling Phoenix and Atlanta, per mile pricing for Uber and Lyft combined was up around 40% and 50% on average, respectively.

The pandemic may be waning, spurring more tourist and commuting demand, but consumers are likely to consider cheaper options amid rising rates and prices for other goods and services. And pricing could get even richer. Facing a driver shortage, Lyft might need to compensate with higher rider rates to compete. Meanwhile, if Uber continues to push for aggressive growth in food delivery and other noncore businesses, then someone has to shoulder that tab.

Ride hailers set out to free us from car ownership and provide us with more convenience and comfort than other available transportation options. What if the future of ride-share is…the bus?

Tuesday’s retail sales report could be the scrap of evidence that tips the balance as Federal Reserve officials decide how much to cut interest rates on Wednesday.

It is practically a given that the central bank will reduce rates. Inflation has fallen to its lowest point since February 2021, giving the Fed more flexibility to focus on the second component of its dual mandate—achieving maximum employment. Although the labor market remains resilient, the most recent two jobs reports have been weaker than expected, putting some pressure on the Fed to loosen monetary policy.

The question now is by how much rates will fall—0.5 percentage point, or 0.25 point? The indications from interest-rate futures are split , recently favoring the more aggressive half-percentage-point decrease.

Andrew Hollenhorst, an economist at Citi , leans toward the likelihood the Fed is more cautious on Wednesday, cutting rates by 0.25 percentage points. But he notes that it it is a close call that depends on the dynamics of the bank’s rate-setting committee and the strength or weakness of Tuesday’s retail sales report.

A positive surprise would suggest that both consumers and the labor market remain resilient, paving the way for a more modest cut. If the report comes in well below expectations, however, Fed officials may grow concerned that a weaker labor market is weighing on consumer spending, which could lead to a bigger cut, Hollenhorst added.

Louis Navellier, founder and chief investment officer of the money-management firm Navellier agrees. “In theory, if the August retail sales report is horrible, then a 0.5% Fed key interest rate cut may be forthcoming on Wednesday,” he said.

Economists are expecting retail sales will decline by 0.2% in August from July, according to FactSet. They jumped by a surprising 1% in July .

Lower gasoline prices and car sales will likely drag the headline number lower. Indeed, stripping out car and gas sales, retail sales are projected to increase by about 0.3% month over month.

Yet there is growing concern that even excluding autos and gas sales, the sales figure will be soft. While spending was remarkably strong in July, the Fed’s latest Beige Book flagged that consumer spending ticked down in August, points out Bill Adams, chief economist for Comerica Bank . Many retailers, particularly those catering to lower-income shoppers, have warned that Americans are being cautious and exceedingly choosy about what they are buying and where.

The impact of the retail sales report will likely extend beyond the immediate rate cut. The insights it contains about U.S. consumers will also factor into the Fed’s quarterly update to its Summary of Economic Projections, containing officials’ latest forecasts for the U.S. economy, inflation, and near-term interest rates.

The so-called dot plot , which charts the individual interest-rate projections of the seven members of the Fed’s board of governors and the 12 regional Fed presidents, is always closely watched as investors try to chart the Fed’s future actions.

Hollenhorst believes the median dot showing where rates will be at the end of 2024 should show “at least” 0.75 percentage-point of cuts, factoring in 0.25 point at each meeting through the end of the year. But it is likely that officials will leave the door open for more cuts in case data on the job market or consumer spending sour faster than expected.

Your Next Uber Could Be The Bus

The cost of rides might be pushing some to more economical transportation.