Consecutive GDP slowdown, Fed doubling, a falling job market, scorching prices and the tech big bang, here are the major economic highlights from a busy week.
It was a turbulent and data-rich week for the US economy.
The Federal Reserve, the nation’s central bank, raised interest rates by 75 basis points on Wednesday, the second time in as many meetings, on hopes that higher borrowing costs will help balance supply and demand. On Thursday, gross domestic product (GDP) estimates indicated the U.S. economy has contracted for two straight quarters, raising concerns the country could be heading into a recession.
On Wall Street, some of the biggest names in U.S. industry, including Apple, Amazon, Microsoft and Alphabet, Google’s parent company, posted better-than-expected earnings and guidance, pushing stocks higher. Other data showed that the US labor market is still very tight despite corporate layoff announcements.
After printing trillions of dollars during the peak of the pandemic to stimulate the economy and soften the blow to businesses and households, annual inflation in the United States is now at its highest level in 40 years and there has indicators that Americans are feeling the pain. Consumer spending, which accounts for more than two-thirds of all economic activity, could be down and retailers are bracing for the pullback.
Here are the main economic developments from a busy week:
Walmart on Monday lowered its second-quarter and full-year profit outlook, noting that rising food and gas prices are causing consumers to spend less on goods like clothing that have markups higher beneficiaries. As of Tuesday morning, Walmart shares had fallen nearly 9%, also dragging down big chains like Target and Kohl’s. The world’s largest retailer rarely lowers its profit forecast in the middle of a quarter, so retail watchers wondered if the industry leader’s warning was a sign of things to come for the entire retail industry.
- Decline in consumer confidence
According to US statistics released on Tuesday, consumers are less sure of their spending. The consumer confidence index fell for a third month to 95.7 from the downwardly revised 98.4 in June. This is the lowest reading since February 2021.
- Fed doubles down, says further increases depend on future data
The Federal Reserve raised interest rates by 75 basis points on Wednesday. The US central bank stepped up efforts to tackle the highest inflation in more than 40 years and said an “unusually large increase may be appropriate” at its September meeting. That decision “will depend on the data we acquire by then,” Fed Chairman Jerome Powell told reporters, stressing that the central bank’s main objective was to bring inflation back to “our target of 2%”. Since March, the Fed has raised rates by 225 basis points.
- Higher mortgages mean fewer home sales
The pandemic-era housing boom is cooling fast, as rising mortgage rates make it more expensive to buy and keep up with mortgage payments. U.S. pending home sales fell the most in June since April 2020, according to figures released Wednesday. “Early signs of a cooling effect are most evident in the housing market, a sector that has been badly hit by rising mortgage costs,” Peter Essele, head of portfolio management at Massachusetts-based Commonwealth Financial Network, told Al Jazeera.
- Microsoft, Alphabet, Apple and Amazon boost morale on Wall Street
Also on Wednesday, an upbeat outlook for Microsoft and Google’s parent company Alphabet sparked a rally in high-growth stocks. Microsoft shares surged after forecasting revenue would grow by double digits this fiscal year. Alphabet, Google’s parent company, reported sales above expectations. Apple and Amazon joined the big tech rally on Friday, adding about $175 billion to their combined market value after upbeat results boosted investor confidence. Amazon shares jumped about 11%. Apple rose more than 3% as the tech giant said that despite customers’ spending habits tightening, iPhone demand remained high.
- US economy shrinks for second straight quarter, but don’t call it a recession
According to the preliminary estimate released Thursday by the US Department of Commerce, GDP shrank at an annualized rate of 0.9% after falling 1.6% in the first three months of the year. Informally, a two-quarter period of declining growth indicated that the economy is slowing. Despite the numbers, US President Joe Biden and administration officials have continued to say a recession is not imminent.
- Hiring slows but unemployment rate remains at 50-year low
The Labor Department showed Thursday that while fewer Americans applied for unemployment benefits for the first time in four weeks, the total was still the highest since November, raising the possibility that the economy is slowing. At 3.6%, the unemployment rate is the lowest in almost 50 years. The employment cost index released on Friday found that a tight labor market helped improve wage growth, which led to a significant increase in labor spending in the United States in the second trimester. Labor costs jumped 5.1% on an annual basis, the largest increase since the start of the current series in 2001. Several companies have recently declared their intention to reduce their workforce. E-commerce company Shopify said this week it would lay off 10% of its employees. Apple, Alphabet and Microsoft also said recruitment was slow.
- Despite increases, higher prices eat into Americans’ paychecks
Consumer prices jumped 6.8% in June from a year earlier – the biggest annual increase since 1982, the Commerce Department said on Friday. The Personal Consumption Expenditure (PCE) price index, which the Fed monitors to determine if it is meeting its 2% inflation target, rose 1% from the previous month. Data on Friday also revealed that consumer spending rose 1.1% in June, driven by the rising cost of living. Americans spent more on health care and cars. With prices soaring, adjusting for inflation means that consumer spending recovered only slightly in June – by 0.1%.