US businesses can't celebrate yet despite strong GDP growth.

Despite economic growth, slowing consumer spending, job shortages, and high interest rates eroding profits, American businesses have yet to celebrate.

The US economy continues to receive positive news. In the third quarter, GDP grew by 4.9%. Ahead of earnings reporting season, a series of positive economic indicators led stock market analysts to maintain their profit expectations instead of cutting them.

Many see this as a sign of the end of the slump in earnings for publicly traded companies in the U.S. This optimism seems reasonable. After a hat-trick of consecutive quarterly earnings declines, net profits are rising again. According to data provider FactSet, of the half of the large S&P 500 companies that have reported earnings, 78% exceeded profit expectations.

However, businesses were largely unhappy. Many company owners failed to excite investors despite announcing positive results. This was particularly evident in large technology companies. Alphabet, Google's parent company, exceeded profit expectations but saw its stock price fall 10%.

Meanwhile, Meta's warnings about economic instability meant that the social media giant's highest-ever quarterly revenue figure was not well-received by the market. In the financial sector, the risk of recession remains, and weak corporate borrowing demand casts a shadow over bank profits.

Customers shop at a Target supermarket in Chicago, Illinois, USA on December 25, 2022. Photo: Reuters — Customers shop at a Target supermarket in Chicago, Illinois, USA on December 25, 2022. Photo: *Reuters*

Why aren't businesses less worried? Despite the boom in the third quarter, the future health of American consumers remains the biggest concern. According to Morgan Stanley, American businesses earn more than a third of their revenue from domestic customers. Retail sales increased by 0.7% in August and September.

Coca-Cola and PepsiCo are therefore optimistic and have raised their profit forecasts for the remainder of the year. However, the recent growth recorded by these two beverage giants is due to price increases, not revenue. Meanwhile, several other risks are gradually emerging.

According to Bank of America, credit and debit card data shows spending declined in October compared to the same period in 2022. Earlier this month, Americans with student loans began making payments again after a three-year deferral. Overall, spending is increasing faster than income, thus eroding savings. American consumers are also less optimistic about their personal finances. Overdue credit card and auto loan payments are on the rise.

That's what's worrying business leaders. Delivery company Up says consumers are spending less on goods and services, dampening profit prospects. Toy maker Mattel, owner of the Barbie brand, is less optimistic about the Christmas season outlook.

Alphabet data shows that consumers are being frugal by increasingly hunting for deals and free shipping. In a recent conversation with Tesla investors, Elon Musk complained that high interest rates are affecting Americans' ability to buy cars. Since then, Tesla's stock price has fallen 15%, equivalent to a $100 billion loss in market capitalization.

Companies are also closely monitoring costs, particularly labor wages. Strikes remain a major headache in some sectors of the economy. By the end of September, Hollywood screenwriters had agreed to stop working. On October 25, the United Auto Workers (UAW) union reached an agreement with Ford to raise workers' wages.

But General Motors said the UAW strike continues to cost them $200 million a week, forcing them to lower their annual profit forecast. Detroit's major automakers aren't the only ones feeling the pressure. Illinois Tool Works, an auto parts manufacturer, has cut its profit forecast. Delta Air Lines has also complained about fewer passengers landing in Detroit.

In addition, there are broader anxieties emerging, though they haven't yet had a real impact. A topic frequently discussed by CEOs recently is the conflict in Gaza. At least for now, the conflict in the Middle East isn't having a major financial impact, although some companies are being cautious. Social media platform Snap reports that some advertisers in the region have stopped spending.

American companies generally make very little profit in the Middle East. For them, the direct risks posed by the war in Gaza are far less than the risk of having to cease operations in Russia, or of strained US-China relations.

Compared to these factors, CEOs are more concerned about long-term profitability due to high interest rates. Bank of America reports that more than three-quarters of the debt borrowed by S&P 500 companies is long-term and fixed-rate, compared to under 50% in 2007. However, these massive debts will eventually need to be refinanced at higher interest rates, which will reduce profits. Many threats still lie ahead.

Phiên An ( according to The Economist )

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