Consecutive GDP slowdown, Fed doubling, cooling labor market, hot prices and tech big bang – these are the main economic moments of a busy week.
The Federal Reserve, the country’s central bank, raised interest rates by 75 basis points on Wednesday, the second time in as many meetings, in hopes that higher borrowing costs will help balance supply and demand. Gross domestic product (GDP) estimates on Thursday indicated that the US economy has contracted for two consecutive quarters, prompting fears that the country may be headed for a recession.
On Wall Street, some of the biggest names in the American industry, including Apple, Amazon, Microsoft and Google’s parent company, Alphabet, have released better-than-expected earnings and forecasts, driving shares up. Other data showed that the US job market is still very tight despite companies announcing layoffs.
After printing trillions of dollars during the peak of the pandemic to stimulate the economy and ease the shock on businesses and households, annual inflation in the United States is now at its 40-year high and there are indicators that Americans are suffering. Consumer spending, which accounts for more than two-thirds of all economic activity, may be in decline and retailers are bracing for withdrawal.
Here are the main economic developments of a busy week:
Walmart lowered its profit outlook for the second quarter and full year on Monday, noting that rising food and gas prices are causing consumers to spend less on goods like clothing that have higher profit margins. . By Tuesday morning, Walmart’s stock was down nearly 9%, dragging major chains such as Target and Kohl’s down as well. The world’s largest retailer rarely lowers its profit forecast in the middle of a quarter, so retail watchers have wondered if the industry wake-up call was a sign of things to come for the entire retail sector.
- Consumer confidence waning
According to US statistics released on Tuesday, consumers are less confident about spending. The consumer confidence index fell for the third month to 95.7 from a revised downward 98.4 in June. This is the lowest reading since February 2021.
- Fed doubles up, says more hikes depend on future data
The Federal Reserve raised interest rates by 75 basis points on Wednesday. The US central bank stepped up its efforts to fight the biggest inflation of the past 40 years and said “an unusually large hike might be appropriate” at its September meeting. That decision “will depend on the data we acquire from now to then,” Fed Chairman Jerome Powell told reporters, noting that the central bank’s overall goal is to bring inflation back to “our 2 percent target.” . Since March, the Fed has raised rates by 225 basis points.
- Higher mortgages mean fewer home sales
The pandemic-era housing boom is cooling rapidly as rising mortgage rates make it more expensive to buy and keep up with mortgage payments. According to data released Wednesday, pending home sales in the United States fell in June to their highest since April 2020. “The first signs of a cooling effect are most evident in the housing market, an industry that has been severely affected by the ‘rising mortgage costs,’ Peter Essele, the head of portfolio management at Commonwealth Financial Network, a Massachusetts-based company, told Al Jazeera.
- Microsoft, Alphabet, Apple and Amazon lift Wall Street sentiment
Also on Wednesday, the rosy outlook from Microsoft and Google’s parent company Alphabet triggered a rally in high-growth stocks. Microsoft stock rose after forecasting revenue would grow double-digit this fiscal year. Google’s parent company, Alphabet, grew with better-than-expected sales. By Friday, Apple and Amazon joined the big tech rally, adding about $ 175 billion to their combined market value after positive results boosted investor confidence. Shares of Amazon were up about 11%. Apple increased more than 3% as the tech giant said that despite customers’ tighter spending habits, demand for iPhones remained high.
- The US economy is contracting for the second consecutive quarter, but don’t call it a recession
According to the preliminary estimate released Thursday by the US Department of Commerce, GDP fell at an annualized pace of 0.9 percent after falling by 1.6 percent in the first three months of the year. Informally, a two-quarter period of declining growth indicated that the economy is in a downward phase. Despite the figures, US President Joe Biden and administration officials went on to say a recession is not imminent.
- Hiring is slowing, but the unemployment rate still remains at its lowest in the last 50 years
The Department of Labor showed on Thursday that even though fewer Americans applied for unemployment benefits for the first time in four weeks, the total was still the largest since November, raising the possibility that the economy could slow down. . At 3.6%, the unemployment rate is the lowest in the last 50 years. The labor cost index released Friday revealed that a strained labor market helped improve wage growth, which resulted in a significant increase in US labor spending in the second quarter. Labor costs rose 5.1% year-on-year, the largest increase since the current series began in 2001. Several companies have recently declared plans to reduce their workforce. Ecommerce company Shopify said this week that it will let 10% of its workers go. Apple, Alphabet, and Microsoft also said recruitment is slowing.
- Despite the hikes, higher prices are taking a bite out of Americans’ paychecks
Consumer prices rose 6.8% in June from a year earlier, the highest annual increase since 1982, the Commerce Department said Friday. The Personal Consumer Spending Price Index (PCE), which the Fed monitors to determine if it is hitting its 2% inflation target, rose 1% from a month earlier. On Friday, the data also revealed that consumer spending rose 1.1% in June, driven by rising cost of living. Americans spent more on both health care and cars. With prices soaring, the adjustment for inflation implies that consumer spending only picked up slightly in June, by 0.1%.