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Earnings season is in full swing, and that means investors get a chance to hear from multinational companies about the state of the global economy. So far, executives are cautiously optimistic.
While the benchmark S&P 500 index has reached several record highs in recent weeks, investors are monitoring the unknowns that could throw a wrench into the market’s ascent, from the Federal Reserve’s interest rate decisions to geopolitical strife to a potential recession.
Some of the United States’ biggest companies are in the hot seat to answer questions about the economy, and where it could be headed.
Here’s what they have to say.
Consumers remain resilient, for now. Consumers have flexed their spending power throughout the Federal Reserve’s battle against inflation. US gross domestic product rose at a seasonally and inflation-adjusted annualized rate of 3.3% during the fourth quarter. Consumer spending makes up about two-thirds of the US economy.
“The consumer picture … is somewhat mixed. Employment remains strong. Wage growth is up. But I think it’s also probably fair to say from our side that the full effects of all the rate hikes and all the economic policy impacts are not fully materialized in the consumer,” said Michael Hsu, CEO at Kleenex-parent firm Kimberly-Clark, on a conference call.
Like the rest of the US, companies are watching whether the economy could still tip into a recession as interest rates hover around a 23-year high. Achieving a soft landing, or a situation in which inflation comes down without an economic downturn, looks likely, some companies said.
“Most consumer segments are healthy, corporate balance sheets are strong and credit fundamentals remain solid,” said Blackstone CEO Stephen Schwarzman on the company’s earnings call. “We see a resilient economy, albeit one that is decelerating. What we’re seeing is consistent with a soft landing.”
Americans are continuing to spend at restaurants and pulling back on travel. Since pandemic restrictions have lifted in the US, Americans have broadly shifted their spending from goods to experiences like concerts, dining out and vacations. But there are changes in how consumers are spending even within the experiences category.
For example, American Express CFO Christophe Le Caillec noted during the company’s post-earnings call on January 26 that restaurant spending, its largest travel and entertainment category, reached $100 billion for the full year for the first time.
Airline spending growth slowed during the fourth quarter, according to the credit card firm. That’s in line with airlines’ warnings late last year that travel demand is softening as it returns to pre-pandemic levels.
Still, that doesn’t mean that Americans’ appetite for travel has completely tapered off.
“Demand remains strong, and we have seen robust bookings to start the year, as travel trends have begun to normalize across entities. We’re also very encouraged by the trends we’re seeing in business travel,” said American Airlines CEO Robert Isom during a call with analysts.
Geopolitical strife is a continued risk. Companies are watching several sources of geopolitical risk this year, from war in the Middle East to the Red Sea crisis to the US presidential election.
“For 2024, demand growth remains the biggest unknown in the face of global economic uncertainty and heightened geopolitical risk,” said Lorenzo Simonelli, CEO of oilfield services firm Baker Hughes, on the company’s post-earnings call.
Some companies are already taking steps to protect themselves against escalations in geopolitical tensions.
“The world has never been more active than it is now … and so I can’t speak for anybody else but we’re reacting to those things in our pricing,” said Alan Schnitzer, chief executive of Travelers Companies, on a January 19 call with analysts.
The Fed is fed up with data revisions
Federal Reserve officials have said countless times they take a “data-dependent approach” to their policy decisions, including their current conundrum of when to slash interest rates. But what if the data isn’t as dependable as it once was?
That’s what appears to be happening — and it’s making central bankers’ jobs a lot harder, reports my colleague Elisabeth Buchwald.
“We have to make decisions in real time,” Fed Governor Christopher Waller said late last year. “Whatever data is released, that’s the data I have to use. The problem with data is it gets revised.”
That wouldn’t necessarily be so much of an issue if the revisions, which can come months after initial reports are released, were relatively small. However, many revisions over the past few years have been game-changers.
For instance, Waller pointed out that initial monthly headline employment numbers for 2021 led him to believe that the job market was “okay, but it’s not really great.” Even though inflation was at a 40-year high, he and other Fed officials were under the impression that they’d need to proceed very carefully with raising interest rates, fearing it could lead to job losses, Waller said.
But along came the revisions.
Brexit is finally coming for UK food imports. Prices could rise
New border controls on some of Britain’s food imports from the European Union came into force Wednesday for the first time since Brexit, increasing red tape for businesses and threatening to drive up prices for consumers, reports my colleague Hanna Ziady.
Meat, eggs, fish and dairy are among a raft of fresh produce that will now require “export health certificates” and other paperwork before entering the United Kingdom.
According to the UK government’s own estimates, the checks — including physical inspections from April — will cost British businesses about £330 million ($419 million) annually and increase food inflation by about 0.2 percentage points over three years. Some industry experts are warning of a greater impact on inflation.
The new controls mark the first time EU food producers must face the hassle of post-Brexit border bureaucracy since Britain exited the bloc’s vast internal market and customs union in January 2021. The country quit the EU a year earlier, in January 2020, following a divisive referendum in 2016.
