Tag: Economic Growth/Recession

Consumer sentiment hits lowest level since June as fear of recession looms

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The numbers: Consumer sentiment soured in November, hitting its lowest level since July as Americans contended with continued inflation and a worsening economic outlook.

The University of Michigan’s gauge of the U.S. consumer’s outlook fell 5.2 index points from 59.9 in October.

Economists were expecting a reading of 59.5, according to a Wall Street Journal poll.

Inflation expectations for the next year rose to 5.1% from 5% in the prior month, while five-year inflation expectations rose to 3% from 2.9% in October.

Big picture: Inflation eased somewhat in October, but prices for a typical basket of consumer goods are still rising a historically rapid pace even as rising interests rates are weighing on many sectors of the economy.

Fears of a coming recession also weighed on Americans’ confidence about the economy.

“Declines in sentiment were observed across the distribution of age, education, income, geography, and political affiliation, showing that the recent improvements in sentiment were tentative,” wrote Joanne Hsu, director of the survey, in a statement. “Instability in sentiment is likely to continue, a reflection of uncertainty over both global factors and the eventual outcomes of the election.”

Key details: A gauge of consumer’s views of current conditions fell in November to 57.8 from 65.6 in October, while an indicator of expectations for the next six months fell to 52.7 from 56.2 last month.

Market reaction: U.S. stocks were trading mixed Friday morning, with the S&P 500
SPX,
+0.92%
posting gains and the Dow Jones Industrial Average
DJIA,
+0.10%
edging lower.

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November 11, 2022
Disney stock dives 10% after earnings and revenue miss, sales growth forecast to slow after record year

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Walt Disney Co. wrapped up its fiscal year with record sales and its best revenue growth in more than 25 years, but executives predicted much slower sales increases in the year ahead while missing expectations for fourth-quarter earnings and sales, sending shares down more than 10% Tuesday afternoon.

Disney
DIS,
-0.53%
reported fiscal fourth-quarter net income of $162 million, or 9 cents a share, on sales of $20.15 billion, up from $18.53 billion a year ago but more than $1 billion short of expectations. After adjusting for amortization and certain investment changes, Disney reported earnings of 30 cents a share, down from 37 cents a share a year ago.

Analysts surveyed by FactSet had on average expected adjusted earnings of 56 cents a share on revenue of $21.27 billion.

Disney executives blamed a number of factors for the revenue miss, including lower content sales because they had fewer theatrical films on the calendar; underperformance of the parks and media divisions; and seasonality of its fourth quarter, which tends to be the lowest for margins.

For the full fiscal year, Disney reported record sales of $82.72 billion, more than 22% higher than the previous year, the strongest annual sales growth for Disney since the 1996 fiscal year, according to FactSet records. Profit grew to $3.19 billion from $2.02 billion the year before, but is nowhere close to prepandemic Disney earnings, which hit eight figures in both 2019 and 2018.

In a conference call Tuesday afternoon, though, Chief Financial Officer Christine McCarthy suggested that revenue and profit growth will slow to single digits on a percentage basis in the current fiscal year, missing Wall Street’s expectations. Analysts’ average revenue projection for Disney in the new fiscal year suggested revenue growth of about 13.9% and operating-income growth of roughly 17.4%, according to FactSet.

“Putting this all together, assuming we do not see a meaningful shift in the macroeconomic climate, we currently expect total company fiscal 2023 revenue and segment operating income to both grow at a high-single-digit percentage rate versus fiscal 2022,” McCarthy said.

Disney shares initially fell more than 6% in after-hours trading following the release of the results, but plunged anew to a decline of more than 10% after closing with a 0.5% decline at $99.94.

Disney has been helped by the return of visitors to its theme parks in the third year of the COVID-19 pandemic, as well as a recovering movie business. The main attraction for investors, though, has been growing Disney’s streaming efforts — total streaming subscribers topped Netflix Inc.’s
NFLX,
+1.88%
subscriber total last quarter, and grew its lead in Tuesday’s report, with Disney adding 12.1 million net new subscribers, while analysts on average expected 10.4 million.

Disney’s streaming growth has hampered its profitability, however, as the company spends to add content to its streaming services in order to compete with Netflix. Those days appear to be coming to an end as Disney struggles with profit.

“The rapid growth of Disney+ in just three years since launch is a direct result of our strategic decision to invest heavily in creating incredible content and rolling out the service internationally, and we expect our DTC operating losses to narrow going forward and that Disney+ will still achieve profitability in fiscal 2024, assuming we do not see a meaningful shift in the economic climate,” Disney Chief Executive Bob Chapek said in a statement announcing the results. “By realigning our costs and realizing the benefits of price increases and our Disney+ ad-supported tier coming December 8, we believe we will be on the path to achieve a profitable streaming business that will drive continued growth and generate shareholder value long into the future.”

Disney’s largest business segment, media and entertainment distribution, reported sales of $12.73 billion in the quarter, down from $13.08 billion a year ago; analysts on average predicted $13.86 billion. Direct-to-consumer sales, which includes streaming services as well as some international products, hauled in $4.9 billion, compared with analysts’ forecast of $5.4 billion on average.

The trajectory of Disney’ meteoric rise as video-streaming market leader is likely to continue once its advertising-supported service debuts in the U.S. next month, according to Wall Street analysts, after Netflix launched its rival offering on Nov. 3. Disney has leaned heavily on its stable of mega-franchises such as “Star Wars” and the Marvel Cinematic Universe to outpace Netflix Inc.
NFLX,
+1.88%,
Apple Inc.
AAPL,
+0.42%,
Comcast Corp.
CMCSA,
+0.95%,
Warner Bros. Discover Inc.
WBD,
-2.04%,
Amazon.com Inc.
AMZN,
-0.61%,
Paramount Global
PARA,
+1.28%
and others.

Read more: Disney overtook Netflix as the streaming leader, and is expected to widen its lead

Disney’s television networks generated sales of $6.34 billion, while analysts’ average estimates called for $6.64 billion. Content sales and licensing, a category that includes Disney’s film business, registered revenue of $1.74 billion vs. analysts’ expectations of $2.08 billion.

The company’s signature theme parks and product sales business increased to $7.43 billion in revenue from $5.45 billion a year ago. The average analyst estimate was $7.46 billion.

Shares of Disney are down 35.5% this year, while the broader S&P 500 index
SPX,
+0.56%
has dropped 20%.

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November 8, 2022
U.S. adds 263,000 new jobs last month — and it’s still too strong for the Fed

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The numbers: The economy gained surprisingly strong 261,000 new jobs in October, underscoring the persistent strength of a labor market that the Federal Reserve worries will exacerbate high inflation.

Economists polled by The Wall Street Journal had forecast 205,000 new jobs.

The unemployment rate, meanwhile, rose to 3.7% from 3.5%, the government said Friday, as more people lost jobs and the size of the labor force shrank a little bit.

Fed Chairman Jerome Powell said on Wednesday the labor market is “out of balance” because there’s too many job openings and too few people to fill them.

Fed officials worry the labor shortage is driving up wages and making it harder for them to reduce inflation back to precrisis levels of 2% or so. The cost of living has risen 8.2% in the past year, one of the highest increases since the early 1980s.

Layoffs and unemployment are likely to increase, however, if the Fed keeps raising U.S. interest rates as expected. The central bank could push a key short-term rate to as high as 5% by next year from near zero just nine months ago.

Rising interest rates slow the economy and sometimes trigger recessions. Many economists predict a downturn is likely by next year. Powell himself admitted the odds of avoiding a recession have fallen due to persistently high inflation.

In October, wages grew 0.4%. Average hourly pay rose slightly in September to $32.58, lowering the increase over the past year to 4.7% from 5%.

It’s the first time in almost a year that the rate of wage growth has dropped below 5%. Before the pandemic, they were rising around 3% a year.

Another potential pressure valve for the economy showed little progress, however. The so-called participation rate — or share of working-age people in the labor force — dipped to 62.2% from 62.3%.

U.S. stocks gave up gains in premarket trades after the report. Until hiring slows a lot further and unemployment rises, the Fed is unlikely to take its foot off the monetary brakes.

Big picture: The economy is slowing — almost every major indicator is much softer compared to earlier in the year.

The labor market is one of the few exceptions.

Normally that’s a good thing, but the Fed thinks the the labor market is too strong for its own good. The series of rate hikes undertaken by the central bank is bound to slow hiring even further and cause unemployment to rise in the months ahead.

The potential saving grace, Powell and some other economists say? Businesses have struggled so hard to hire people amid a labor shortage that they might not lay off as many people as they usually do when the economy goes sour.

Market reaction: The Dow Jones Industrial Average
DJIA,
-0.46%
and S&P 500
SPX,
-1.06%
were set to open lower in Friday trades. The yield on the 10-year Treasury note
TMUBMUSD10Y,
4.158%
rose to 4.19%.

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November 4, 2022
What NASA knows about soft landings that the Federal Reserve doesn’t

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The Federal Reserve still has a chance to meet both of its main goals — strong economic growth and stable prices — but time is running out to achieve a soft landing.

The problem is that Fed officials are fixated on raising interest rates
FF00,
+0.00%
several more times, including another supersize increase at their meeting Tuesday and Wednesday. They don’t seem to notice that inflation is already retreating significantly, while growth is dangerously close to stalling out.

They have a blind spot because they are looking at the past.

Greg Robb: Another jumbo Fed rate hike is expected this week — and then life gets difficult for Chairman Powell

Fed officials ought to reach out to another government agency that has had remarkable success in achieving soft landings: The National Aeronautics and Space Administration.

NASA’s scientists know something the Fed has forgotten: It takes a long time to send and receive messages from space, so they need to account for those delays when sending instructions to their spacecraft so they can land safely on Mars, or orbit Saturn or the moons of Jupiter.

Compounding errors

It’s the same way with the economy. The signals that the Fed receives from the economy are often delayed, sometimes by months. Unfortunately, one of the main signals the Fed is relying upon right now to decide how much to raise interest rates is delayed by a year or more.

I’m talking about inflation in the price of putting a roof over our heads. Shelter prices are now the leading contributor to increases in the consumer price index (CPI) and the personal consumption expenditure (PCE) price index. But because of the way the CPI for shelter is constructed — for very good reasons — the inflation reported today reflects conditions as they were 12 to 18 months ago.

The error is compounded because shelter prices are by far the largest component of the CPI, at more than 30%.

The Fed is disappointed that inflation hasn’t declined more since it began raising interest rates in March, but how could it when the signals about shelter prices were sent last summer and fall, long before the housing market began to cool in response to higher interest rates
TMUBMUSD10Y,
4.049%
and the reductions in the Fed’s holdings of mortgage-backed securities?

According to real-time data, shelter prices are no longer rising at a near-10% annual rate as the CPI and PCE price index claim. Growth in rents and house prices has slowed since the first rate hikes in March. House prices are actually falling in most regions of the country, and private-sector measures of rents show that landlords are now dropping rents in many cities.

Just like a radio signal from Jupiter, it takes time for that message to be received by the CPI. It will be received and incorporated into the CPI eventually, but by then it may be too late for the Fed to react. The Fed might crash the spacecraft because it mistakenly believes the messages it gets are in real time.

Growth is slowing

The Fed’s blind spot puts the economy in peril. Recent data show that growth is naturally slowing from the breakneck pace following the pandemic shutdowns but also from the Fed’s relentless squeeze on financial conditions.

It’s very hard to argue that the economy is still overheating. Domestic demand has stalled out since the spring. Final sales to domestic purchasers — which covers consumer spending and business investment — has grown at a 0.3% annual pace over the past two quarters.

Real disposable incomes are growing at less than 1% annualized. Household wealth has fallen off a cliff, with the stock market
SPX,
-0.41%

DJIA,
-0.24%
in a bear market and home equity beginning to fall. Wage growth is beginning to slow. Supply chains are improving.

And the CPI excluding shelter has gone from rising at a 14% annual pace in the spring when the tightening began, to falling at a 1% annual pace over the past three months. Rate hikes are working!

This benign picture on inflation may not persist. Inflation is still worrisome, particularly for essentials such as food, health care, new vehicles and utilities.

But the Fed should adopt a more balanced view of the economy, no matter what the signals from the past say. No one wants a hard landing.

Just ask NASA.

More reported analysis from Rex Nutting

Everybody is looking at the CPI through the wrong lens. Inflation fell to the Fed’s target in the past three months, according to the best measure.

The Federal Reserve risks driving the economy into a ditch because it’s not looking at where inflation is heading

Americans are feeling poorer for good reason: Household wealth was shredded by inflation and soaring interest rates

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November 1, 2022
Consumer mood indicates ‘a recession ahead’ amid stock, housing market ‘tumult’

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The numbers: Consumer sentiment improved slightly in October to 59.9, though Americans perceptions of the economy remained historically negative as a weak stock market and ongoing inflation weighed on their finances.

The University of Michigan’s gauge of consumer attitudes added 1.3 index points from 58.6 in September, and was up slightly from an initial reading of 59.8 earlier in the month.

Economists were expecting at a reading of 59.8, according to a Wall Street Journal poll.

Big picture: While the rate of inflation is no longer worsening, steady price increases for key items like food and shelter continue to weigh on the American mood.

“With sentiment sitting only 10 index points above the all-time low reached in June, the recent news of a slowdown in consumer spending in the third quarter comes as no surprise,’ wrote the survey’s director, Joanne Hsu, in a Friday note.

“While lower-income consumers reported sizable gains in overall sentiment, consumers with considerable stock market and housing wealth exhibited notable declines in sentiment, weighed down by tumult in those markets,” she added. “Given consumers’ ongoing unease over the economy, most notably this month among higher-income consumers, any continued weakening in incomes or wealth could lead to further pullbacks in spending that would reinforce other risks of recession.”

Key details: A gauge of consumer’s views of current conditions rose in October to 65.6 from 59.7 in September, while an indicator of expectations for the next six months fell to 56.2 from 58 last month.

Market reaction: U.S. stocks were trading mixed Friday morning, with the Dow Jones Industrial Average
DJIA,
+2.59%
TK and the S&P 500 TK
SPX,
+2.46%.

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October 28, 2022
Heineken shares tumble on cautious outlook, shortfall in beer volumes growth

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Heineken NV shares fell Wednesday after it said organic beer volumes rose in the third quarter by 8.9%, missing market consensus expectations of 12% as taken from its website, and that its outlook was cautious.

Shares at 0730 GMT were down 9% at EUR80.24.

The Dutch brewer
HEIA,
-9.96%

HEIO,
-9.19%
said said that the weaker than expected results were driven by low-single-digit volume growth in Africa, the Middle East, Europe and the Americas, though the Asia-Pacific region delivered a strong recovery from pandemic-related restrictions with total beer volume growth of 89.6%.

Net revenue, which excludes excise tax expenses–rose to 7.79 billion euros ($7.76 billion) in the quarter from EUR6.03 billion last year. A company-compiled consensus forecast had seen net revenue at EUR7.88 billion.

In the nine-month period, net revenue rose 23% to EUR21.27 billion while net profit fell to EUR2.2 billion from EUR3.03 billion. Net profit last year was boosted by an exceptional gain of EUR1.27 billion from the revaluation of a stake in United Breweries in India

The company backed its guidance for 2022 of a stable-to-modest sequential improvement in adjusted operating profit margin, but didn’t reiterate its previously provided 2023 guidance of adjusted operating profit organic growth in the range of mid- to high-single digits.

“We increasingly see reasons to be cautious on the macroeconomic outlook, including some signs of softness in consumer demand. We remain vigilant and confident in our EverGreen strategy,” Chairman and Chief Executive Dolf van den Brink said.

The company said it maintains its efforts to offset input cost inflation with pricing.

Write to Dominic Chopping at dominic.chopping@wsj.com

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October 25, 2022

These 11 stocks can lead your portfolio’s rebound after the S&P 500 ‘earnings recession’ and a market bottom next year

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This may surprise you: Wall Street analysts expect earnings for the S&P 500 to increase 8% during 2023, despite all the buzz about a possible recession as the Federal Reserve tightens monetary policy to quell inflation.

Ken Laudan, a portfolio manager at Kornitzer Capital Management in Mission, Kan., isn’t buying it. He expects an “earnings recession” for the S&P 500
SPX,
+2.78%
— that is, a decline in profits of around 10%. But he also expects that decline to set up a bottom for the stock market.

Laudan’s predictions for the S&P 500 ‘earnings recession’ and bottom

Laudan, who manages the $83 million Buffalo Large Cap Fund
BUFEX,
-2.86%
and co-manages the $905 million Buffalo Discovery Fund
BUFTX,
-2.82%,
said during an interview: “It is not unusual to see a 20% hit [to earnings] in a modest recession. Margins have peaked.”

The consensus among analysts polled by FactSet is for weighted aggregate earnings for the S&P 500 to total $238.23 a share in 2023, which would be an 8% increase from the current 2022 EPS estimate of $220.63.

Laudan said his base case for 2023 is for earnings of about $195 to $200 a share and for that decline in earnings (about 9% to 12% from the current consensus estimate for 2022) to be “coupled with an economic recession of some sort.”

He expects the Wall Street estimates to come down, and said that “once Street estimates get to $205 or $210, I think stocks will take off.”

He went further, saying “things get really interesting at 3200 or 3300 on the S&P.” The S&P 500 closed at 3583.07 on Oct. 14, a decline of 24.8% for 2022, excluding dividends.

Laudan said the Buffalo Large Cap Fund was about 7% in cash, as he was keeping some powder dry for stock purchases at lower prices, adding that he has been “fairly defensive” since October 2021 and was continuing to focus on “steady dividend-paying companies with strong balance sheets.”

Leaders for the stock market’s recovery

After the market hits bottom, Laudan expects a recovery for stocks to begin next year, as “valuations will discount and respond more quickly than the earnings will.”

He expects “long-duration technology growth stocks” to lead the rally, because “they got hit first.” When asked if Nvidia Corp.
NVDA,
+6.14%
and Advanced Micro Devices Inc.
AMD,
+3.69%
were good examples, in light of the broad decline for semiconductor stocks and because both are held by the Buffalo Large Cap Fund, Laudan said: “They led us down and they will bounce first.”

Laudan said his “largest tech holding” is ASML Holding N.V.
ASML,
+3.79%,
which provides equipment and systems used to fabricate computer chips.

Among the largest tech-oriented companies, the Buffalo Large Cap fund also holds shares of Apple Inc.
AAPL,
+3.09%,
Microsoft Corp.
MSFT,
+3.88%,
Amazon.com Inc.
AMZN,
+6.63%
and Alphabet Inc.
GOOG,
+3.91%

GOOGL,
+3.73%.

Laudan also said he had been “overweight’ in UnitedHealth Group Inc.
UNH,
+1.77%,
Danaher Corp.
DHR,
+2.64%
and Linde PLC
LIN,
+2.25%
recently and had taken advantage of the decline in Adobe Inc.’s
ADBE,
+2.32%
price following the announcement of its $20 billion acquisition of Figma, by scooping up more shares.

Summarizing the declines

To illustrate what a brutal year it has been for semiconductor stocks, the iShares Semiconductor ETF
SOXX,
+2.12%,
which tracks the PHLX Semiconductor Index
SOX,
+2.29%
of 30 U.S.-listed chip makers and related equipment manufacturers, has dropped 44% this year. Then again, SOXX had risen 38% over the past three years and 81% for five years, underlining the importance of long-term thinking for stock investors, even during this terrible bear market for this particular tech space.

Here’s a summary of changes in stock prices (again, excluding dividends) and forward price-to-forward-earnings valuations during 2022 through Oct. 14 for every stock mentioned in this article. The stocks are sorted alphabetically:

Company	Ticker	2022 price change	Forward P/E	Forward P/E as of Dec. 31, 2021
Apple Inc.	AAPL, +3.09%	-22%	22.2	30.2
Adobe Inc.	ADBE, +2.32%	-49%	19.4	40.5
Amazon.com Inc.	AMZN, +6.63%	-36%	62.1	64.9
Advanced Micro Devices Inc.	AMD, +3.69%	-61%	14.7	43.1
ASML Holding N.V. ADR	ASML, +3.79%	-52%	22.7	41.2
Danaher Corp.	DHR, +2.64%	-23%	24.3	32.1
Alphabet Inc. Class C	GOOG, +3.91%	-33%	17.5	25.3
Linde PLC	LIN, +2.25%	-21%	22.2	29.6
Microsoft Corp.	MSFT, +3.88%	-32%	22.5	34.0
Nvidia Corp.	NVDA, +6.14%	-62%	28.9	58.0
UnitedHealth Group Inc.	UNH, +1.77%	2%	21.5	23.2
Source: FactSet

You can click on the tickers for more about each company. Click here for Tomi Kilgore’s detailed guide to the wealth of information available free on the MarketWatch quote page.

The forward P/E ratio for the S&P 500 declined to 16.9 as of the close on Oct. 14 from 24.5 at the end of 2021, while the forward P/E for SOXX declined to 13.2 from 27.1.

Don’t miss: This is how high interest rates might rise, and what could scare the Federal Reserve into a policy pivot

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October 17, 2022

Fed more worried about risks of ‘unacceptably high’ inflation than overdoing rate hikes, meeting minutes show

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Calling inflation “unacceptably high,” Federal Reserve leaders saw their strategy of fighting price pressures aggressively as less risky to the economy than doing too little, minutes of the bank’s last meeting show.

The Fed approved another jumbo-size increase in U.S. interest rates at its Sept. 21-22 meeting. It also signaled plans for another pair of big increases before year-end in a surprise to Wall Street
DJIA,
-0.10%.

The minutes of the Fed’s meeting underscore that top officials were disappointed and worried about persistently high inflation.

“A sizable portion of the economic activity has yet to display much response,” the Fed minutes said. “Inflation had not yet responded appreciably to a policy tightening.”

While some senior Fed officials also worried the bank could go too far and damage the economy, the majority appeared to believe it was vital for the central bank to squelch inflation, even if that meant keeping rates high for a prolonged period.

“Many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action,” the minutes said.

The Fed predicts the economy will eventually slow as rates rise, but it noted the labor market remains extremely tight.

Fed officials also expressed concern that oil prices could rise again, supply chains would not heal as quickly as expected and that rising wages could exacerbate inflation.

“Inflation was declining more slowly than [Fed officials] had been anticipating,” the minutes said.

The internal Fed debate has also playing out publicly since the last meeting.

Some senior officials such as Atlanta Federal Reserve President Raphael Bostic hope the bank will make enough progress in its fight against inflation to “pause” rate hikes at the end of this year.

Fed critics contend the bank is going to go too far and could plunge the economy into a second recession in four years. A pause would allow the Fed to see how much its prior rate hikes have succeeded in lowering the rate of inflation, they say.

Others such as Minneapolis Fed chief Neel Kashkari and Cleveland Fed boss Loretta Mester say the Fed needs to take whatever steps necessary to quell inflation as soon as possible.

Failing to do so, they contend, would make it even harder to get prices back under control if Americans come to view high inflation as the norm. That would do even more damage to the economy in the long run.

Jennifer Lee, senior economist at BMO Capital Market, downplayed the debate and said the Fed in unified on its next few steps.

“The Federal Reserve is pretty much in sync and is not going to be easing anytime soon,” she said.

Since March the Fed has lifted a key short-term interest rate from near zero to an upper end of 3.25%. And the central bank has telegraphed plans to raise the so-called fed funds rate to as high as 4.75% by next year.

Rising U.S. interest rates has done little so far to douse inflation.

The rate of inflation, using the Fed’s preferred PCE price index, rose at a yearly rate of 6.2% as of August. That’s a long way off from the Fed’s forecast for inflation to fall to 2.8% in 2023 and 2.3% by 2024.

The higher cost of borrowing has only chilled a few parts of the economy, most notably housing.

The rate on a 30-year mortgage has surged above 7% to a 16-year high from less than 3% one year ago. The result has been a slowdown in home buying and construction and softer sales of home furnishings.

Most consumer and business loans are influenced by the fed funds rate.

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October 12, 2022
GDP set to turn positive again due to shrinking U.S. trade deficit and end ‘rule-of-thumb’ recession

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The numbers: The U.S. international trade deficit fell in August to a 15-month low of $67.4 billion, paving the way for a resumption of growth in gross domestic product in the third quarter.

The deficit narrowed 4.3% from $70.5 billion in July, the government said Wednesday. It was the fifth decline in a row.

Economists polled by The Wall Street Journal had forecast a deficit of $67.7 billion.

GDP contracted in the first two quarters, meeting an old rule-of-thumb for when an economy is in recession.

The group of prominent economists that makes the official declaration, however, uses a broader definition that suggests the economy has avoided a recession.

Big picture: The U.S. trade deficit has tumbled since peaking at a record $106.9 billion in March. Exports have risen and imports have declined, particularly because of falling oil prices.

Lower trade deficits add to GDP, the official scorecard of the economy. The shrinking trade gap is set to add a whopping 3 points to third-quarter GDP, according to estimates from S&P Global Market Intelligence.

That’s the mirror opposite of what happened in the first quarter, when the record trade gap caused GDP to turn negative for the first time since early in the pandemic.

The result: GDP is set to rise for the first time in three quarters, ending at least for now any talk that the U.S. is already in recession.

Which way the trade deficit trends in the months ahead is less clear. A strong dollar is hurting U.S. exporters while a slowing economy could force Americans to reduce spending on imports even though they are cheaper to buy.

Ditto for the economy. While it’s still growing, the pace of expansion is expected to slow as the Federal Reserve jacks up interest rates to try to tame high inflation.

Key details: Exports slipped 0.3% in August to a $258.9 billion, but it’s still the second highest level on record.

Imports dropped 1.1% to $326.3 billion, marking the lowest level since early 2021.

Looking ahead: “The further sharp decline in the trade deficit… means that net exports provided a big boost to third-quarter GDP growth,” said senior U.S. economist Andrew Hunter at Capital Economics. “But the twin drags from the surging dollar and the deteriorating global economy suggest that strength will fade soon.”

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.27%
and S&P 500
SPX,
+0.20%
sank in Wednesday trades following a two-day rally.

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October 5, 2022

Tag: Economic Growth/Recession

Compounding errors

Growth is slowing

More reported analysis from Rex Nutting

Laudan’s predictions for the S&P 500 ‘earnings recession’ and bottom

Leaders for the stock market’s recovery

Summarizing the declines