When the presidentthe treasury secretary and other officials of the Biden administration insisted this week that the US economy is not currently in recession, but they were mocked in front of weasel from bad news about a technical problem. The Trade Department announced on Thursday that the broadest measure of economic activity, gross domestic product, fell for the second quarter in a row — meeting a widely held, though unofficial, definition of recession. It is true, as the Biden folks claimed, that the country’s official recession arbiter, the National Bureau of Economic Research, has had to call another one because it relies on many more signals. Still, it sure sounded like the Biden team was splitting hairs.
In recent days, however, I’ve been spending more time listening to CEOs outline their companies during quarterly earnings calls. (What can I say? I’m a sucker for a good time.) And I was surprised by what I heard. The CEOs convinced me that the Biden people — not to mention Jay Powell, the chairman of the Federal Reserve, who also said this week that a recession probably hasn’t started yet – have a point.
The economy is really in a weird place. There are definitely signs of trouble. But things aren’t all bleak for some of the largest companies in the country — especially in the tech industry. And even in struggling companies, the numbers aren’t nearly as bad as investors feared.
At the beginning of the week, I told my editor that I would be writing about how the tech industry could be facing one of its worst slowdowns in two decades. By the end of the week, I found myself withdrawing from all that was so dramatic. Yes, some companies are going through unusually difficult times. Business models are on the rise. Competition is mounting. Regulators are getting stricter. Recruitment is slowing down. Employees are asked to do more with less. And all that just on Facebook!
But there are also signs that some big companies are able to get through tough times — or, in a label adopted by so many CEOs I wondered if they agreed in a secret meeting, a challenging macro- economic environment.
Consider some of the brightest spots: Qualcommthe chip maker, reported that despite that “challenging macroeconomic environment,” profits grew more than 50 percent from last year due to strong sales of the processors used in phones and cars. Ford reported that strong sales of its SUVs and crossovers pushed its adjusted earnings before tax and interest more than threefold from a year ago. In the meantime Visa, MasterCard and American Express said Americans still spend like there’s no tomorrow. “We see no evidence of a decline in consumer spending,” Vasant Prabhu, Visa’s chief financial officer, told investors.
Many on Wall Street were particularly concerned about the results of the behemoths of Big Tech – Apple, Microsoft, Amazon and Alphabet and Meta, the parent companies of Google and Facebook. These belong to the most valuable US companies, and they have risen during the pandemic. But this year, Big Tech’s growth has slowed and stock prices have been crushed. Dan Ives, an analyst at Wedbush Securities who is optimistic about the tech giants, said sentiment among tech investors was the most negative he’s seen since 2009.
On Tuesday, Microsoft and Alphabet released their numbers and turned the story around. Alphabet said revenue grew 13 percent last year — lower than usual for a money maker like Google, but not much less than analysts had expected and better than many feared. Ives said Google’s not-too-bad results indicated that the online advertising market was holding up.
Microsoft’s results were also lower than analysts expected, but investors were still excited about it, especially the 40 percent growth in Microsoft’s cloud services business. Because Microsoft’s core business is providing technical services to large companies, the strong number of cloud services casts a positive light on the entire economy, Ives said. “That was probably one of the most important data points in years for the tech sector,” he told me.
On Wednesday, Meta released what’s for it pretty bleak numbers; among other things, the company recorded a decline in quarterly sales for the first time compared to the same period a year ago. But expectations were very low for Facebook. The company’s stock plunged this year after it reported that Apple’s new privacy features hampered its ability to collect data about users. It has also faced continued competition from TikTok. And because Mark Zuckerberg, the founder and CEO of Facebook, is spending billions to take the business from social networking to “the metaverse” — the virtual domain that’s still evolving and that he thinks will one day be at the center of our business. computer experience – his future looks more than a little cloudy.
But there was even light in Meta’s grim report. Zuckerberg said that TikTok’s competitor Reels is gaining popularity among users and advertisers. User numbers have also held up. Meta has been dealing with so much bad news — this week the Federal Trade Commission announced it would file a lawsuit to ban the company from buying a small virtual reality start-up — that expectations could hardly get any lower. “The street was just expecting an absolute legendary disaster,” Ives said. But compared to the projected hurricane of horrendous revenue, Facebook’s numbers were more like “a little rainstorm,” he said.
After markets closed on Thursday, Amazon and Apple reported their quarterly earnings. Guess? They also usually crush it. Amazon said its cloud business grew 33 percent last year. CEO of Apple told CNBC that the company expects sales to “accelerate” next quarter.
This year I argued that despite recent delays, Big Tech’s reign is just beginning. As the economy weakened over the course of the year, I began to question my bold forecast. But now I’m doubling down. Tech giants, like the rest of the economy, may soon face more difficult times. But Amazon, Apple, Microsoft, Google and even Facebook are coming through tough times much better than expected. Big Tech won’t go away anytime soon.
Office Hours with Farhad Manjoo
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