Pre-market stocks: the strange reason the US economy is shrinking

Factory closures. A wave of job losses and few open positions. Huge financial losses hit most industries.

So what’s going on, and where can we go? The answers to both questions can be found in state stores.

Breaking it down: US gross domestic product for the second quarter fell at an annualized rate of 0.9%, according to the first reading from the Commerce Department published Thursday. That followed a 1.6% contraction during the first three months of the year.

The data stored in the debate over whether the US is already in recession, which economists have warned is a risk as the Federal Reserve raises interest rates and inflation curbs consumer spending.

Federal Reserve Chairman Jerome Powell, for example, doesn’t think this moment has come — at least not yet.

“I don’t think the United States is currently in a recession,” Powell said earlier this week. “There are a lot of areas of the economy that are doing very well.”

But GDP doesn’t just turn negative on its own, and Thursday’s data contains useful guidance for understanding the complex economic moment.

Note: Inventories, or merchandise held by a company that has not yet been sold, had a major role to play.

Companies stockpiled several items late last year as they tried to stave off supply chain problems and ensure they could meet the growing demand.

But in recent months, they realize they have a lot to do, especially at an uncertain time for manufacturers and shoppers, and have become reluctant to place new orders.

The subsequent slowdown in the build-up of inventories contributed to much of the downturn between April and June, removing a whopping two percentage points from economic output.

Why it matters: Some economists and investors believe that because growth has been pushed forward at the end of 2021, activity in the first half of 2022 appears to be artificially low.

“The fourth quarter, for me, was a little bloated,” said Anna Rathbone, chief investment officer at CBIZ Investment Consulting Services. “Everyone was just stockpiling things.”

But this does not mean that stock levels should be ignored. In fact, they contain useful clues when monitoring how fast the US economy will slow down from now on.

Ed Cole, managing director of discretionary investments at Man Group, told me there are two main reasons he is keeping a close eye on the speed at which US stocks are growing “as an indication of where we are in the cycle.”

  • If customers buy fewer products, companies will not place new orders, which will affect factory production.
  • If companies have to get rid of unwanted inventory at huge discounts, it will put pressure on revenue and profits.

“Recent warnings from major retailers have shown this effect very clearly,” he added.

See here: This week, Walmart (WMT) It lowered its earnings forecast, warning that customers are changing their shopping habits. This requires extensive write-offs to remove excess stocks of products such as clothing.
It’s not the only company with this problem. American outdoor brands (AOBC) She recently told analysts that “rapidly rising inflation and interest rates … have raised inventory levels.” Hasbro (she has) It also said it had “above normal stock levels” for this time of year, although it emphasized that its stock was “extremely high quality”.

Amazon avoids tech stagnation

Amazon (AMZN) It’s getting stronger even as other big tech companies falter.

The e-commerce giant on Thursday reported net sales of more than $121 billion between April and June, up 7% from the same quarter last year and above Wall Street estimates.

Investor Insights: Amazon stock rose 12% in premarket trading as investors shrugged off the company’s $2 billion loss, which it attributed in part to its investment in electric truck maker Rivian.

The focus is instead on the company’s guidance for its current quarter, which ends in September. Amazon expects net sales of between $125 billion and $130 billion, up 17% from last year.

“Big Tech has been a mixed bag of earnings this season, but Amazon has proven that the strong can survive even the toughest environments,” Laura Hoy, an analyst at Hargreaves Lansdown, told clients.

at the same time, apple (AAPL) It looked less impressive. The world’s most valuable technology company reported revenue of $83 billion, up just 2% from last year and a marked slowdown from the rapid growth it saw in 2021. Profits are down about 11%.

However, Apple beat estimates, sending shares up more than 2% in pre-market trading.

My thought bubble: Even giant corporations aren’t immune to the stress of an economic downturn, but they are better insulated.

Having a cloud services company definitely helps. It was a bright spot for Microsoft (MSFT) And the The Google (google)Amazon Web Services generated $5.7 billion in revenue. The unit’s revenue was nearly $20 billion, up 33% over the same period last year.

China’s leaders have been silent on economic goals

China’s top leadership has been silent about the growth targets it has set for this year, as the world’s second-largest economy grapples with a largely self-inflicted economic slowdown.

In early March, the Chinese government said the country would aim for a GDP rise of about 5.5% this year. It is China’s lowest official target for economic growth in three decades. However, economists said it seems far-fetched.

See here: Earlier this week, the International Monetary Fund cut its forecast for China’s GDP growth to just 3.3% this year as the Covid-19 lockdowns and the crisis in the real estate sector weigh on its expansion.

Now, the country’s leadership has been completely silent about growth targets, my CNN Business colleague Laura He reports. At a key meeting of top leaders on Thursday, there was no mention of GDP targets.

According to analysts, this is a sign that the government thinks it may not be able to achieve its goals after all.

“At today’s meeting, policy makers used the new phrase: ‘Strive for the best score.’ This means they no longer see 5.5%, or even 5%, achievable this year,” said Larry Hu, chief China economist at Macquarie Capital.

next one

chevron (CVX)And the Bloomin Brands (BLMN)And the ExxonMobil (XOM)And the Newell Brands (NWL) And the Procter & Gamble Company (PG) Report findings before US markets open.

Also today: The PCE price index arrives at 8:30 a.m. ET. It is the measure of inflation that the Federal Reserve is watching closely.

Coming release next week: The US jobs report for July will be closely scrutinized for evidence that the economy is slowing faster than expected.

– Martha White, Alicia Wallace, Rishi Iyengar, and Claire Duffy contributed to the report.

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