This Week in Business: Recession Fears

What’s new? (July 24-30)

Meta’s bad day

Wednesday was not a big day for the company formerly known as Facebook. First there was a Federal Trade Commission lawsuit, and then the company announced its first-ever revenue drop since going public. The FTC, led by Lina Khan, one of Big Tech’s biggest critics, is suing Meta to stop it from buying Within, a virtual reality company that would help Meta CEO Mark Zuckerberg enter the metaverse . In the lawsuit, the FTC accused Meta of trying to buy a company it would have to compete with. Meta replied that the agency had put together a case “based on ideology and speculation”. Later, the company announced that its second-quarter revenue was down 1% from a year earlier, results Mr. Zuckerberg put in the context of “an economic downturn that will have a broad impact” on digital advertising. Still, he seems relentless in pushing forward his vision for the next era of his business, and he told employees that anyone not on board can leave.

A recession? Or not?

The economy contracted for the second straight quarter, meeting the criteria for a common definition of a recession. Adjusting for inflation, gross domestic product fell 0.2% in the second quarter, the Commerce Department said Thursday. But while closely watched, GDP isn’t the only indicator of a serious downturn: Economists use a wide range of data to determine the state of the economy, including measures of income, spending and employment, and most argue that the United States is not in a recession. And seen through the eyes of Federal Reserve officials, the latest GDP numbers are a sign that their efforts to slow the economy are working. But the outlook is certainly darkening, especially with the housing market slowing and an increase in layoffs.

The Fed’s supersize rate hike

The Federal Reserve continued its determined pursuit of reining in rising prices last week by raising interest rates by three-quarters of a percentage point. Policymakers had unanimously agreed on the size increase, which followed a similarly large increase in June, the largest since 1994. The Biden administration has said it relies heavily on the Fed to bring inflation under control . But a day after the Fed meeting, President Biden announced that an agreement had been reached with Senator Joe Manchin III of West Virginia to advance a package known as the Inflation Reduction Act. Cecilia Rouse, who is chair of Mr Biden’s Council of Economic Advisers, said the plan would make a “significant contribution” to the government’s efforts to dampen inflation.

And after? (July 31-August 6)

Booming Oil Profits

While all other sectors are grappling with factors such as rising production costs, shortages, supply chain issues, changing consumer habits, the strength of the dollar against foreign currencies – the list goes on – global markets have a clear winner: energy. Shell last week reported second-quarter profit of $11.5 billion, another record for the company as Ukraine’s war-spurred oil and gas price spike generates huge profits. Exxon Mobil and Chevron followed suit, with record profits in the quarter, and BP will likely report similarly strong results on Tuesday. The company wrote off $25.5 billion for pulling out of Russia in the first quarter, but celebrated an “outstanding” performance overall, more than doubling its profit from a year earlier. By the end of this week, the world’s major oil companies will together have reported that they have added tens of billions of dollars to their bottom lines as high energy prices disrupt economies.

Another Closely Watched Jobs Report

Job growth in June was stronger than expected, indicating a still-booming job market and a growing economy. But that wasn’t necessarily a good outcome for the Fed, whose officials are looking in a range of economic data for signs that the economy is slowing from its torrid pace. On the other hand, a strong jobs report is a useful messaging tool for the Biden administration when faced with questions about whether the economy is in a recession. The July jobs report will be released on Friday and economists will have a new number to analyze as they try to determine where the economy stands.

Inflation is also high in Britain

At its last meeting in June, Bank of England officials hinted they may be less modest about rate hikes in August after a string of quarter-point hikes. At present, its benchmark rate is 1.25, the highest since 2009. But as is the case elsewhere, inflation in Britain is galloping at its fastest pace in decades, and some central bank officials fear they are not moving fast enough. to remedy. In June, three of nine people on the pricing committee voted for a half-point increase but were shut down by a majority. Policymakers can now feel pressure from other central banks acting more aggressively.

What else?

JetBlue Airways and Spirit Airlines announced plans to merge a day after Spirit broke off merger talks with Frontier Airlines. A Trader Joe’s in Hadley, Massachusetts, became the first of the company’s more than 500 stores to unionize. Instagram has backtracked on some of its product changes after celebrities joined in a user-led backlash.