As talk of a slowing U.S. economy spread across Wall Street this month, the number of companies that actually discussed a recession with investors on conference calls is nearing its lowest level in three years.
Between June 15 and Aug. 15, only 28 S&P 500 companies mentioned a recession in their earnings calls, according to the most recent data from FactSet. That’s well below the five-year average of 83 and below the 10-year average of 60.
In the first quarter of this year, “recession” was mentioned just 27 times — you’d have to go back to the fourth quarter of 2021 to see that few mentions of a recession on an earnings call.
The number of mentions of 2022 is significantly lower than the year one of the most widely predicted recessions in history failed to arrive.
“The very low level of ‘recession’ mentioned in the just-concluded second quarter of 2024 signals management’s confidence in its current and near-term earnings strength,” DataTrek’s Nicholas Colas wrote in a client note Monday morning. “If there’s a need to justify missing earnings or downgrades to future guidance, we should expect to hear a lot more talk of a looming recession in the near future.”
The July jobs report, which showed the unemployment rate hitting its highest level in nearly three years, triggered the thumb rule, a well-known recession indicator. The stock market selloff in early August further stoked concerns that investors and the Federal Reserve had overlooked a sudden economic slowdown.
Still, economists generally say that while the U.S. economy appears to be cooling for now, it is not heading toward a full-blown recession, and few are predicting an imminent downturn.
Goldman Sachs’ economics team lowered the chance of a recession within the next 12 months to 20% from 25% on August 17, noting that recent data shows strong consumer spending and few layoffs, and that “there are no signs of a recession.”
But the state of the U.S. consumer will remain a key issue throughout the second-quarter earnings season, and Goldman Sachs’ equity strategy team, led by David Kostin, sees these prospects as a mix of good and bad.
“As in the previous quarter, several companies noted that consumers of their products are feeling the pressures of the macroeconomic environment, which is contributing to weaker sales,” Kostin wrote in a client note on Aug. 14. “However, this experience is not universal, as other companies are seeing continued strength in consumer spending.”
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Kostin emphasized that companies continue to debate who consumers want value from.
This coincides with comments Walmart CFO John David Rainey made about consumers to Yahoo Finance after the company’s quarterly earnings release on Aug. 15.
“Consumers are hanging in there,” Rainey said.
American fans cheer during the Paris 2024 Olympic Games at Parc des Princes in Paris, France on August 10, 2024. (Daniella Porcelli/ISI Photo/Getty Images) (Daniella Porcelli/ISI Photo via Getty Images)
The labor market is showing similar signs of a slowdown, but without the ramp-up in layoffs that typically precedes a recession. Kostin and his team found that about 3% of companies in the Russell 3000 index discussed job cuts during their quarterly earnings calls. That’s down from a peak of more than 6% in 2022 and roughly in line with pre-pandemic trends.
“Companies’ comments about their hiring plans and the labor market this quarter generally reflect a healthy labor market,” Kostin wrote. “While there has been some discussion of job cuts and a slower pace of hiring, the comments generally reflect a better balance between companies’ hiring needs and the available talent pool.”
Overall, quarterly earnings are on a strong note: S&P 500 companies are expected to post 10.9% year-over-year earnings growth in the second quarter, which would be their best annual growth rate since the fourth quarter of 2021.
Binky Chadha, chief equity strategist at Deutsche Bank, said while companies are reporting solid growth, there isn’t much “upside momentum” as they are still factoring in uncertainties around interest rates, inflation and the election.
“Many firms stress that customer activities are not being abandoned or canceled, but rather postponed, delayed or postponed, and most do not see any signs of a broader economic downturn,” Chadha wrote.
“So we saw strong pent-up demand and were confident that demand would pick up once there was more clarity on the macroeconomic and political situation.”
Josh Shaffer is a reporter for Yahoo Finance. Follow him on X Follow.
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