🇺🇸 All-American success

What’s going on here?

The US economy sped past everyone’s expectations last quarter.

What does this mean?

Just a few months ago, the US economy was bracing for a standstill, with experts predicting zero growth and an imminent recession. But now the tables have turned: the economy expanded at an annualized rate of 2.4% last quarter, outpacing both expectations and the previous quarter’s 2% growth. The real heroes of this turnaround were consumers: their spending made up over two-thirds of all economic activity in the quarter, and all that cash-flashing was probably buoyed by the period’s relatively cool inflation. But consumers weren’t the only ones spending big bucks: private investment and government spending each saw an uptick too.

Why should I care?

The bigger picture: Not a sure thing.

With inflation finally coming back down to earth, and the economy faring fine, a “soft landing” is starting to look more realistic. But some party-poopers argue we’re just hitting the snooze button on a recession, not avoiding it. After all, Thursday’s blowout data was likely spurred by government incentives in areas like chips and EVs – which could fan the flames of inflation, and might lead to more rate hikes. And let’s not forget about the everyday folks who are financing their purchases with debt: they could start to feel the pinch of those higher borrowing costs before long.

For markets: Short-term tremors.

When it comes to the likelihood of a recession, markets continue to make a bold statement with a “yield curve inversion” – with two-year government bonds paying out more than ten-year ones. That’s a sign investors see the short-term outlook as riskier than the long-term one, and the phenomenon almost always suggests a recession’s coming in the next twelve months. But it is just one indicator, mind you, and plenty of economists think it could be wrong this time around.

What’s going on here?

Nestlé, the food titan, just served up some killer first-half results, and price hikes played a starring role.

What does this mean?

Consumer staples usually enjoy the privilege of upping their prices without causing a customer stampede – but with budget-conscious customers cutting back, even stalwarts like Unilever and PepsiCo are witnessing dipping sales volumes. And Nestlé’s in the same boat: after all, the amount of goods it sold took a hit for the fourth straight quarter. But that’s not the whole story. A hefty price rise of 9.5% meant the firm still managed to race past some expectations, with an impressive 8.7% increase in first-half organic sales. And the firm’s expecting to sell more products and make more money over the rest of the year – with a lush marketing drive designed to win back market share from white-label rivals.

Why should I care?

For you personally: I scream, you scream.

The chatter about staples matters, because your shopping basket is probably full of them. Right now, shoppers have to fork out 31% more for a jar of love-it-or-hate-it Marmite than they did last year – and 55% more for a four-pack of Magnum ice creams. So with inflation past its peak and some input costs on the decline, some staple-making firms are now facing accusations of price-gouging. But they’re not sitting idle: Nestlé plans to ease up on price rises for the rest of the year, and it looks like Unilever is following suit – which could give your bank balance some much-needed TLC.

Zooming out: Europe’s scorching.

Cooling price rises are exactly what European consumers need. The European Central Bank (ECB) just brought interest rates to a record high, with a 0.25-percentage-point hike on Thursday. And with the ECB warning that inflation is expected “to remain too high for too long”, it doesn’t seem like an end to hikes is in sight yet.