Beyond the tech hype, how healthy is American business?
TEN MONTHS ago the spectre of recession was haunting corporate America. Inflation was rampant, earnings were depressed and the Federal Reserve was rapidly tightening the screws. Instead, inflation has moderated, the jobs market remains tight and recession is no longer a certainty. The prospect of an elusive “soft landing” has combined with hype over the productivity-boosting promise of artificial intelligence (AI) to give investors a fillip. This year the S&P 500 index of big American firms is up by nearly a fifth.
Markets are especially bullish about a handful of tech firms and carmakers. These are among the s&p 500’s most ai-obsessed members, according to our early-adopters index (which takes into account factors such as ai-related patents, investments and hiring). And they have done well in the here and now, too: all reported respectable second-quarter results in the latest earnings season. But what about the health of the broad swathes of the American economy that are less affected by the tech hype? Here the picture is more complex, but ultimately reassuring.
The resilience is perhaps most obvious for businesses with fortunes tied to the condition of the American consumer, who remains in rude health. Pedlars of consumer staples, such as foodstuffs and household goods, saw their profits rise by 5%, year on year, according to UBS. For purveyors of non-staple consumer goods, earnings shot up by 40%. On August 1st Starbucks, a coffee-shop colossus (ranked 116th in our AI index), reported a quarterly operating profit of $1.6bn, up by 22%. The next day Kraft Heinz, a seller of ketchup and baked beans (ranked 253rd), said it made $1.4bn in operating profit, two and a half times what it eked out a year ago.
2023-08-06 12:40:53
Original from www.economist.com