The effects of these past seven days will reverberate over the next few weeks around the deserted halls of Wall Street and Washington DC while politicians and investors retreat to the Hamptons or Martha’s Vineyard or wherever they summer. Are we in a recession? It’s hard to say, but hopefully the knowledge we’ve gathered during this treacherous week will be fully absorbed by September and our understanding of the US economy will be clearer.
So what are we working with here? Let’s recap.
- The Federal Reserve hiked rates another 75 basis points. The market anticipated this move, but it was still a historically large rise. The Fed’s actions increased the interest rate that banks charge each other for overnight loans to a range between 2.25% and 2.50%, the highest since December 2018.
- Key inflation indicators showed that prices remain high. The personal consumption price index rose 6.8% in June – the largest 12-month move since January 1982.
- Consumer spending was higher, which is typically a sign that the economy remains strong. This time, however, the rise is likely due to rising prices, not thickening wallets. Personal consumption spending rose 1.1% for the month, ahead of the 0.9% estimate.
- The economy contracted for the second quarter in a row. GDP contracted at an annual rate of 0.9%. This decline marks an important symbolic threshold for the most commonly used – albeit unofficial – definition of a recession as two consecutive quarters of negative economic growth.
- Americans became more pessimistic about the economy. The Conference Board Consumer Confidence Index fell in July for the third straight month. About 43% of 3,000 respondents said they believe the US has a more than 50% chance of going into recession in the next 12 months, compared to just 13% in April.
- Home price growth slowed for the second straight month. Prices in May were still resilient, up 19.7% year-on-year, according to the S&P CoreLogic Case-Shiller National Home Price Index. But the market is cooling off on higher mortgage rates and inflation concerns. In April they grew by 20.6%.
- Congress passed a $280 billion package to boost the domestic chip manufacturing industry. The law will increase production of key computer chips in the US to avoid future supply chain problems and increase competition with China.
- Senators Chuck Schumer and Joe Manchin struck a $700 billion deal on a comprehensive climate, tax and health bill. The plan includes $370 billion in energy and climate spending, about $300 billion in deficit reduction, subsidies for Affordable Care Act premiums, and tax changes.
- 170 companies reported Q2 results including Microsoft (MSFT), Alphabet (GOOG), Meta Platforms (FB), Apple (AAPL) and Amazon (AMZN). The results were mixed, Many companies are warning of future inflation and slowing growth. Still, the markets managed to end the week and month higher.
That’s a lot to digest. Especially during a very persistent heat wave.
Unfortunately, we have another data-heavy week before we get a break.
Earnings continue next week with reports from Starbucks (SBUX), Uber (UBER) and Airbnb.
We also anticipate the release of some key economic data: JOLTs (job vacancies), unemployment rates and PMI, a key indicator of US economic activity, are all on our way.
So hold back with swimsuits and sun protection factor for the time being. Or don’t and bring the beach to your desk. Vacation is a state of mind, right?
Ducati conquers the world
My CNN colleague Jonathan Hawkins recently had the opportunity to sit down with Ducati CEO Claudio Domenicali in Misano, Italy, where World Ducati Week attracted around 80,000 enthusiastic fans and owners over three days.
The company, which is owned by Volkswagen, announced Friday that it posted record sales of 542 million euros ($552 million) in the first half of 2022 and grew operating profit by about 15%.
But the Ducati boss described a difficult mix of business conditions that have made it harder to meet a surge in demand for the bikes.
Supply chain issues since the pandemic have been a “complete nightmare,” Domenicali said.
“It was a very complicated mix of everything,” he said, noting that the time it takes to get a container from Asia to Europe has doubled, while closures in China have made it difficult to meet the necessary ones to procure parts.
However, he pushed back on the idea that supply chains should become more localized, pointing to the pitfalls of reversing decades of globalization.
“When you do business for the whole world, you stay better connected,” Domenicali said.
Amidst the uncertainty, the company has an advantage. The cheap euro, which fell to par with the US dollar in July for the first time in two decades, is benefiting exporters like Ducati by making their goods cheaper for foreign customers.
“It’s a help,” said Domenicali, no problem.
And he said the company, one of Italy’s best-known brands, was not shaken by the collapse of Prime Minister Mario Draghi’s government. Ducati has got used to implementing its long-term plans without counting on the government, according to Domenicali.
Monday: ISM Manufacturing PMI (July).
Tuesday: JOLT’s (June); Starbucks, Airbnb and Uber report profits.
Wednesday: ISM Non-Manufacturing Purchasing Managers’ Index (July).
Thursday: Weekly initial jobless claims.
Friday: unemployment rate (June); Berkshire Hathaway reports earnings.