Businesses ‘Feel the Weakening Economy’, Despite Strong Data: Morning Brief

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Thursday 4th August 2022

Today’s newsletter is from Myles Udland, senior market editor at Yahoo Finance. Follow him on Twitter @MylesUdland and go LinkedIn.

In 2008, comedian Louis CK appeared in Late Night with Conan O’Brien and provided an early version of a postmodern worldview that partly defined American culture in the 21st century: “Everything is great and no one is happy. “.

One part the timeless lament of a middle-aged commentator, another part the stinging observation of an increasingly connected world struggling with the choice to buy the new iPhone 3G or BlackBerry Bold: a pose of perennial dissatisfaction that is being done again way across the ether during our post-pandemic economic recovery.

Economic surveys exemplify current socio-economic anxiety.

On Wednesday, the Institute for Supply Management (ISM) released its latest survey on entrepreneurship in the service sector. The carefully observed report showed that activity in the sector – which accounts for around 80% of GDP growth – increased at an accelerating pace in July.

Service sector activity grew at an accelerating pace in July, ISM data showed on Wednesday.  (Source: Wells Fargo Economics)
Service sector activity grew at an accelerating pace in July, ISM data showed on Wednesday. (Source: Wells Fargo Economics)

This particular reading has now shown expansion in the service sector for 26 consecutive months. Only twice in the past 150 months has this reading been negative.

However, a certain feeling that Kyla Scan dubbed the Vibecession continues to make its way into the business world.

“He can feel the weakening of the economy,” an executive in the support services sector told the ISM. “Customers are making the right moves in anticipation of a recession.”

“Keep stable, but some headwinds are definitely ahead on the economic front,” said another executive in the utilities sector. “However, the supply chain problems appear to be easing, although they are not yet exceptional.”

To be clear, the ISM report showed an acceleration of commercial activity and new orders compared to the previous month. Imports, inventories and employment were the only three of the report’s eleven sub-indices that saw a slowdown.

“Despite growing concern about a downturn, there were few signs of a slowdown in the details of the report,” Wells Fargo economists led by Tim Quinlan said Wednesday. “Consumer resilience will eventually run out, but the July ISM services data further supports our view that service sector activity will hold up well in the near term.”

People carrying shopping bags walk inside the King of Prussia mall, as shoppers show up early for Black Friday sales, in King of Prussia, Pennsylvania, November 26, 2021. REUTERS / Rachel Wisniewski

People carrying shopping bags walk inside the King of Prussia mall, as shoppers show up early for Black Friday sales, in King of Prussia, Pennsylvania, November 26, 2021. REUTERS / Rachel Wisniewski

But as is often the case in the current economic moment, different datasets nominally focused on the same pocket of the economy can tell divergent stories. In a separate report released Wednesday, for example, S&P Global’s July reading on the services sector showed a sharp contraction in activity in July, with manufacturing declining at the fastest pace since May 2020.

And, of course, businesses aren’t alone in being skeptical that this economic moment is far beyond a recession: In June, consumer sentiment dropped to an all-time low and a slight rebound in July offered little. consolation. Even two consecutive quarters of negative GDP growth – which sparked a heated debate about what constitutes a formal recession – do not inspire confidence.

“US economic conditions worsened significantly in July, with commercial activity declining in both manufacturing and services,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. “Excluding the months of the pandemic freeze, the overall drop in production was the largest since the global financial crisis and signals a strong likelihood that the economy will contract for the third consecutive quarter.”

And because nothing is simple in today’s economy, the S&P report showed that employment – one of only three areas that contracted according to the ISM – actually increased in July.

To recap: we have two relationships. One says the service sector is growing and the other says the sector is shrinking. But the report showing overall growth suggests employment has continued to contract while the report showing growth contraction suggests employment is growing.

If you can follow that thread, it sums up the state of the economy pretty well.

A sculpture representing dozens of traffic lights flashes on a roundabout in Canary Wharf, with the Canary Wharf tower behind, East London, February 17, 2003. Monday is the first day of the congestion charge, a flat rate for most motorists who enter central London.  TPORT REUTERS / Toby Melville TM

A sculpture representing dozens of traffic lights flashes on a roundabout in Canary Wharf, with the Canary Wharf tower behind, East London, February 17, 2003. REUTERS / Toby Melville

At the end of last month, we said that the biggest challenge in gaining an “one big thing” view on the current state of the US economy is that we are still working to eliminate the excesses of 2021. And this, in turn. , makes it difficult to understand what a post-pandemic steady state might be.

Furthermore, the dynamics apply to both strategic corporate initiatives and forecasts on economic data.

“Looking ahead, services activity will be somewhat subdued as hot inflation, tighter financial conditions, supply chain stress, pessimistic sentiment and weakening spending will limit growth,” he wrote in a new note Oren Klachkin, chief economist of the United States at Oxford Economics. “The best days of the recovery are clearly in the rearview mirror, but that doesn’t mean an economic downturn has begun. We think the fundamentals are strong enough to prevent a recession this year, even if the window for a soft landing is narrowing. . ”

Maybe it’s not an image that screams “everything is great”, but it’s clear that the cheap content between us is getting less and less. Although the expansion continues.

What to watch today

Economic calendar

  • 7:30 am ET: Job cuts for challengersyear over year, July (58.8% in previous month)

  • 8:30 am ET: Trade balanceJune (- $ 80.0 billion expected, – $ 85.5 billion in previous month)

  • 8:30 am ET: Initial unemployment claimsweek ending July 30 (260,000 expected, 256,000 in previous week)

  • 8:30 am ET: Continuing complaintsweek ending July 23 (1,383 expected, 1,359 in the previous week)

I earn

  • Abiomed (ABMD), Air Lease (ALB), Air Products and Chemicals (APD), AMC Entertainment Holding (AMC), Alibaba (BABA), Amgen (AMGN), Applied Optoelectronics (AAOI), Becton Dickinson (BDX), Beyond Meat (BYND), BioCryst Pharmaceuticals (BCRX), Bio-Techne (TECH), Cable One (CABO), Carvana (CVNA), Chegg (CHGG), Choice Hotels International (CHH), Chuy’s Holdings (CHUY), Clean Energy Fuels ( CLNE), ConocoPhillips (COP), Crocs (CROX), CubeSmart (CUBE), Duke Energy (DUK), Dynavax Technologies (DVAX), Eagle Bulk Shipping (EGLE), Expedia (EXPE), Fidelity National Information Services (FIS), Funko (FNKO), GoPro (GPRO), iHeartMedia (IHRT), = Intrepid Potash (IPI), Ironwood Pharmaceuticals (IRWD), ITT (ITT), Kellogg (K), Kratos Defense and Security Solutions (KTOS), Eli Lilly ( LLY), Cheniere Energy (LNG), El Pollo Loco Holdings (LOCO), Lyft (LYFT), Live Nation Entertainment (LYV), Nikola (NKLA), NU Skin Enterprises (NUS), Papa John’s International (PZZA), Paylocity Holding (PCTY), Parker-Hannifin (P H), Physicians Realty Trust (DOC), Public Storage (PSA), SeaWorld Entertainment (SEAS), Shake Shack (SHAK), Skyworks Solutions (SWKS), TripAdvisor (TRIP), Twilio (TWLO), Universal Display (OLED), Vulcan Materials (VMC), Wayfair (W), WW International (WW), XPO Logistics (XPO), Yelp (YELP), Yeti Holdings (YETI), Zoetis (ZTS)

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