While the president, the Treasury secretary and other Biden administration officials insisted this week that the U.S. economy is not currently in recession, they were mocked for dismissing bad news on technicalities. The Commerce Department said on Thursday that the broadest measure of economic activity, gross domestic product, fell for the second quarter in a row — a widely held, albeit informal, definition of a recession. True, as the Biden people argue, the nation’s official recession judge, the National Bureau of Economic Research, still won’t name one, because it relies on so many indicators. Still, the Biden team seems to be splitting hairs.
However, over the past few days, I’ve spent more time listening to CEOs expound on their business during the quarterly corporate earnings call. (What can I say, I’m a good timekeeper) and I was surprised by what I heard. The CEOs convinced me that Biden’s people — not to mention Federal Reserve Chairman Jay Powell, whose fallout this week probably hasn’t even begun — have a point.
The economy is in an amazing place. There are definitely signs of trouble. However, for the country’s biggest companies – particularly in the technology sector – business is not so bleak. And even in struggling companies, the numbers aren’t as bad as investors feared.
Earlier in the week, I told my editor how the tech industry is facing its worst slowdown in two decades. By the end of the week, I found myself bracing for all of this amazing stuff. Yes, some companies are having an unusually difficult time. Business models are exploding. Competition is heating up. Regulators are getting tougher. Employment is declining. Workers are asked to do more with less. And that’s all just on Facebook!
But there are also signs that some of the biggest businesses are heading for tougher times – or, in a secretive meeting in an account embraced by many CEOs, I thought they would agree to a challenging macroeconomic environment.
Here are some bright spots: Chipmaker Qualcomm reported a more than 50 percent rise in profits despite a “difficult macroeconomic environment,” thanks to strong sales of processors used in phones and automobiles. Ford reported that strong sales of its SUVs and crossovers more than tripled its adjusted earnings before taxes and interest from a year ago. Meanwhile, Visa, MasterCard and American Express are still spending Americans saying there is no tomorrow. “We are not seeing any evidence of a slowdown in consumer spending,” Visa chief financial officer Vasanth Prabhu told investors.
Many on Wall Street were particularly worried about the results from Big Tech – Apple, Microsoft, Amazon and the parent companies of Alphabet and Meta, Google and Facebook. These are among the most valuable American companies, and they rose when the epidemic occurred. But growth in Big Tech has slowed this year, and its share price has fallen. Wedbush Securities analyst Dan Ives is bullish on the tech giants, saying sentiment among tech investors is the most negative it has seen since 2009.
Then on Tuesday, Microsoft and Alphabet released their numbers and turned the narrative around. Alphabet said revenue rose 13 percent from last year — less than usual for a money-printing machine like Google, but less than analysts had expected and no better than many had feared. Ives said Google’s not-so-bad result is the online ad market.
Microsoft’s results also fell short of analysts’ expectations, but investors were still pleased by them, particularly the 40 percent growth in Microsoft’s cloud services business. Because Microsoft’s core business is providing technology services to large companies, its strong cloud numbers shine a positive light on the entire economy, Ives said. “This is probably one of the most important data points for the technology sector in years,” he said.
On Wednesday, Meta released what are some pretty sad numbers; Among other things, the company posted its first quarterly revenue decline in the same period a year ago. But expectations for Facebook were very low. The company’s stock has fallen this year as Apple’s new privacy features have disrupted its ability to collect data on users. It also faces constant competition from TikTok. And with Facebook founder and CEO Mark Zuckerberg spending billions to transform the company from a social network into the “metaverse” — a still-evolving virtual realm that he believes will one day be central to our computing experience — the future looks more than a little cloudy.
But even in the meta-horror report, there was light. Zuckerberg said the company’s TikTok competitor, Rails, is gaining popularity with users and advertisers. Its user numbers have also kept up. Meta is dealing with so much bad news — this week the Federal Trade Commission announced it will file a lawsuit to block the company from buying a small virtual reality startup — that expectations can’t be dampened. “The road was just waiting for a perfect historical disaster,” Ives said. But compared to the expected storm of monstrous earnings, Facebook’s numbers were like “a little rainstorm,” he said.
After the markets closed on Thursday, Amazon and Apple reported their quarterly numbers. guess what? And they’re mostly grinding it out. Amazon said its cloud business grew 33 percent year over year. Apple’s CEO told CNBC that the company expects earnings to “accelerate” next quarter.
This year, despite the recent slowdown, I’ve argued that the reign of Big Tech is just beginning. As the economy weakened during the year, I began to question my bold predictions. But now I’m doubling down. Tech giants, like the rest of the economy, may soon face tough times. But even Amazon, Apple, Microsoft, Google and Facebook are having a tougher time than expected. Big Tech is not going away anytime soon.
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