As The Economy Weakens, Business Leaders Grow Fearful – Forbes
As the realization of stubbornly high inflation, paying more for less, a possible recession, an endless war in Eastern Europe, supply chain disruptions resulting in empty shelves and job cuts sink in, the United States may be entering the fear stage.
Working-class families worry about feeding their children. Young adults lament that they can’t afford the promised American dream of home ownership and starting a family. Only a year ago, the U.S. was reaping the benefits of economic prosperity. Now, 401(k)s, college funds for the kids and stock market investments have substantially plunged with no end in sight.
Emblematic of the mindset shift is what happened in the tech sector. After unbridled growth for over a decade, hiring thousands of well-paid professionals and offering them enticing amenities and perks, the party has abruptly ended. The end of cheap money is over due to the Federal Reserve Bank’s quantitative tightening and the government halting trillion-dollar financial stimulus programs.
You can see the results on LinkedIn, as thousands of newly laid-off tech workers post about their downsizing in pursuit of new jobs. Renowned venture capitalist Bill Gurley summarized the new landscape in an informative Twitter thread, stating that the “‘game on the field’ has changed.” During the economic boom, the tech companies “created a Disney-esque set of experiences [and] expectations.” Gurley added, “You can’t ‘wish away’ the fact that if your company isn’t cash-flow positive [and] capital is now expensive, you are living on borrowed time.”
Is Mark Zuckerberg Starting To Panic?
It’s been reported that fearful Meta, the parent company of Facebook, employees are expecting job cuts as high as 10%. Mark Zuckerberg, the imperial head of the once-invincible, social-media giant, said he would crack down on low performers.
Meta human resources chief Lori Goler struck a chord of fear, as she suggested in a memo that employees who couldn’t meet expectations in this new tougher environment may have to worry about the safety of their positions within the organization. Meta has been feeling the heat, as TikTok continues to steal market share.
The New York Post reported that Zuckerberg allegedly couldn’t maintain his composure when one of his employees inquired about vacation and personal days off during a meeting in which the CEO shared his plans for potentially letting go of underperforming workers.
The Wall Street Experts Sound The Alarm
You may recall the name Michael Burry from the book and film, The Big Short. He was one of the lone money managers to predict that the economy and stock market were in for a free fall. His reputation for making prescient market calls was cemented when the stock market crashed in the Great Recession.
Burry has been warning that the U.S. is in for another economic plunge, which would reverberate to the job market. Sensing that the White House is not owning up to the severe nature of the dilemma, he accused President Joe Biden of moving the goalposts on the definition of a recession (two consecutive quarters of contraction). Burry pointed out that Americans are using their credit cards to cover the high living costs. The high-interest rates on the debt will cause further concerns for the consumers.
His views are echoed in a new Maru public opinion poll, which found 57% of Americans are anxious over inflation’s impact on their financial situation, and 14% are experiencing a sense of fear, as they feel their lifestyle will decline.
Nouriel Roubini, chief executive of Roubini Macro Associates and teacher at New York University’s Stern School of Business, said, “There are many reasons why we are going to have a severe recession and a severe debt and financial crisis.” Roubini, another expert who predicted the financial meltdown of 2008 and 2009, told Bloomberg, “The idea that this is going to be short and shallow is totally delusional. Today, we face supply shocks in a context of much higher debt levels, implying that we are heading for a combination of 1970s-style stagflation and 2008-style debt crises—that is, a stagflationary debt crisis.” He believes that U.S. stocks will most likely plunge lower and drop by 50%.
Walmart’s share price plummeted about 10% and its management cut its quarterly and full-year profit guidance. Walmart, the largest big-box retailer, is a bellwether for the economy. So it’s alarming that one of the most successful U.S. companies that cater to working Americans is experiencing challenges.
As inflation hits a 40-year high and prices are uncomfortably rising, families are cutting back on their purchases. While they are buying necessities, such as food (which have low-profit margins), families are skimping on electronics and other items that don’t need to be bought at this time. The problem for Walmart and other retailers is that the profits are more substantial with the big-ticket items.
There are also concerns in an array of other sectors. For example, Wall Street is seeing fewer M&A, IPOs and deal-making activities. In addition, real estate faces headwinds as cash-strapped families can’t afford the higher monthly mortgage payments and are walking away from purchasing homes. Similarly, renters are not able to afford the rent in major cities.
Here’s Some Positivity
Famed Wall Street analyst Ed Yardeni offered some comfort. In a Bloomberg interview, the longtime securities analyst said the worst has passed for this bear market. The Yardeni Research president contends that the S&P 500’s plummet last month to a 3,666.77 low was most likely the bottom of the 2022 stock market rout. In addition, he points to the recent corporate earnings mainly looking solid, as American consumers continue to spend and there is still a high employment rate.
Economy grew 0.5 per cent in January, Statistics Canada reports – Ottawa.CityNews.ca
OTTAWA — Economic growth resumed in January and came in better than first expected following a small contraction in December, Statistics Canada said Friday.
Real gross domestic product rose 0.5 per cent to start the year, the agency said, beating its initial estimate for a gain of 0.3 per cent for the month and reversing a contraction of 0.1 per cent in the final month of 2022.
Statistics Canada also said its initial estimate for February indicates growth continued with a gain of 0.3 per cent, though it cautioned the figure will be updated.
“There were many indications that the economy got off to a solid start in 2023, but today’s double-barrelled blast of strength is well above even the most optimistic views,” BMO chief economist Douglas Porter wrote in a report.
“Even if growth stalls in March, it now looks like Q1 will post growth of 2.5 per cent, up from a flat read in Q4. While we continue to look for a notable cooldown in the next two quarters, we are bumping up our GDP growth estimate for all of 2023 by three ticks to 1.0 per cent.”
The growth in January came as goods-producing industries gained 0.4 per cent for the month, while services-producing industries rose 0.6 per cent.
Statistics Canada said many of the main drivers for growth in January also contributed the most to the decline in December.
The wholesale trade, transportation and warehousing, and mining, quarrying and oil and gas extraction sectors all rebounded after falling in the previous month.
Wholesale trade gained 1.8 per cent in January, helped by wholesalers of machinery, equipment and supplies, while the mining, quarrying and oil and gas extraction sector grew 1.1 per cent after falling 3.3 per cent in December.
The transportation and warehousing sector added 1.9 per cent in January, more than offsetting a drop of 1.1 per cent in December that was due in part to bad weather.
This report by The Canadian Press was first published March 31, 2023.
The Canadian Press
Canada's economy shows surprising resilience despite rate hikes – BNN Bloomberg
Canada’s economy kept growing at the start of this year, defying expectations of a stall and eventual technical recession in the face of the highest interest rates in 15 years.
Preliminary data suggest gross domestic product expanded 0.3 per cent in February, Statistics Canada reported Friday in Ottawa, led higher by oil and gas, manufacturing, and finance and insurance sectors. That followed a 0.5 per cent expansion in the previous month, stronger than expectations for 0.4 per cent growth in a Bloomberg survey.
The Canadian economy is now on track to expand at an annualized rate of 2.8 per cent in the first quarter, assuming growth in March comes in flat. That’s much more robust than the 0.5 per cent annualized pace forecast by the Bank of Canada in January, when it signaled a conditional rate pause.
“Today’s double-barreled blast of strength is well above even the most optimistic views,” Bank of Montreal Chief Economist Doug Porter said in a report to investors. “Suffice it to say that if the strength seen in the opening months of the year persists, the BoC is going to find itself in a tough spot.”
Canada’s currency reclaimed nearly all of its losses after the release and bonds rallied. The yield on benchmark government two-year debt fell more than 3 basis points to 3.777 per cent at 9:50 a.m. in Ottawa.
The data suggest while some rate-sensitive sectors like housing have already cooled, overall economic growth is still holding up better than expected. It’s also at odds with a flurry of early estimates released last week that suggested a pullback in economic activity, with retail, wholesale and manufacturing sales all falling in February.
Friday’s numbers will test Governor Tiff Macklem and his officials as they look for evidence that monetary policy is sufficiently restrictive to bring inflation back to the central bank’s 2 per cent target. An accumulation of stronger-than-expected data may prompt them to stay on the sidelines for longer or even hike again.
Traders in overnight swaps markets, however, are betting the Bank of Canada’s next move will be a cut, given turmoil in global financial markets after the failure of regional U.S. lenders and a government brokered takeover of a European banking giant.
Economists in a monthly Bloomberg survey see 1 per cent annualized growth in the first three months of this year. But that’s expected to be followed by two straight quarterly contractions.
During deliberations for the central bank’s March 8 decision to hold rates steady for the first time in nine meetings, policymakers said they saw “clear signals” hikes so far were curbing demand. But there are few signs in recent data that the economy is gearing down.
Both goods-producing and services-producing industries were up in January, with nearly all sectors posting increases, except agriculture, utilities and management of companies.
Rebounds in several industries drove the January gain. Many of the key growth drivers were the largest contributors to December’s 0.1 per cent decline, including wholesale, transportation, and oil and gas industries. Accommodation and food services activity was also a key contributor.
“The Bank of Canada is likely at a crucial juncture and facing a significant dilemma,” Charles St-Arnaud, chief economist at Credit Union Central Alberta Ltd., said in a report to investors. “The central bank may have to choose between fighting inflation and hiking interest rates again or focusing on financial stability and keeping rates on hold.”
UK economy avoids recession but businesses still wary
LONDON, March 31 (Reuters) – Britain’s economy avoided a recession as it grew in the final months of 2022, according to official data which showed a boost to households’ finances from state energy bill subsidies but falling investment by businesses.
With the economy still hobbled by high inflation and worries about a weak growth outlook, gross domestic product (GDP) increased by 0.1% between October and December after a preliminary estimate of no growth.
GDP in the third quarter was also revised to show a 0.1% contraction, a smaller fall than initially thought, the Office for National Statistics (ONS) said on Friday.
Two consecutive quarters of contraction would have represented a recession.
Despite the improvement, British economic output remained 0.6% below its level of late 2019, the only G7 economy not to have recovered from the COVID-19 pandemic.
“The latest release takes the UK a little further away from the recessionary danger zone although the report does not change the overall picture that the economy’s performance was lacklustre over the second half of 2022 as the cost of living crisis hit hard,” Investec economist Philip Shaw said.
The International Monetary Fund forecast in January that Britain would be the only Group of Seven major advanced economy to shrink in 2023, in large part because of an inflation rate that remains above 10%.
Since then, a string of economic data has come in stronger than expected by analysts.
Ruth Gregory at Capital Economics said Friday’s figures showed high inflation had taken a slightly smaller toll than previously thought.
“But with around two-thirds of the drag on real activity from higher rates yet to be felt, we still think the economy will slip into a recession this year,” she said.
House prices slid in March at the fastest annual rate since the financial crisis, mortgage lender Nationwide said.
The Bank of England (BoE) last week raised interest rates for the 11th consecutive meeting and investors are split on the possibility of another increase in May.
Britain’s dominant services sector rose by 0.1%, boosted by a nearly 11% jump for travel agents, echoing other data which has pointed to a surge in demand for holidays.
Manufacturing grew by 0.5%, driven by the often erratic pharmaceutical sector, and construction grew by 1.3%.
Individuals’ savings were boosted by the government’s energy bill support scheme and households’ disposable income increased by 1.3% after four consecutive quarters of negative growth.
The BoE expects Britain’s economy to have contracted by 0.1% in the first three months of 2023 but it forecasts slight growth in the second quarter.
The outlook has improved thanks in large part to falling international energy prices and a strong jobs market.
But the picture could darken again if recent turmoil in the global banking sector leads to lenders reining in loans.
BUSINESS INVESTMENT FALLS
The data suggested businesses remained cautious. Business investment fell 0.2% in quarterly terms, a sharp downgrade from a first estimate of a 4.8% rise after changes to the way the ONS calculates seasonal adjustments.
Earlier on Friday, a survey painted a more upbeat picture for businesses.
Finance minister Jeremy Hunt this month announced new tax incentives to encourage companies to invest, although they were less generous than a previous scheme and came just as corporate tax is due to jump.
The ONS said Britain posted a shortfall in its current account in the fourth quarter of 2.5 billion pounds ($3.1 billion), or 0.4% of GDP.
Excluding volatile swings in precious metals, the shortfall fell to 3.3% of GDP from 4.2% in the third quarter.
The ONS said increased foreign earnings by companies, particularly in the energy sector, helped narrow the deficit.
Britain’s financial account surplus – which shows how the current account deficit was funded – comprised large net inflows of short-term, “hot” money. Foreign direct investment was negative in net terms for a sixth quarter running.
($1 = 0.8073 pounds)
Our Standards: The Thomson Reuters Trust Principles.
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