Even as execs voice caution about CHICAGO DETROIT Reuters - Companies that produce goods at the heart of the U.S. consumer economy - SUVs, washing machines, heavy equipment and hamburgers - kept rolling along at the end of 2022, the U.S. earnings run ahead of estimates.
But corporate executives on conference calls were guarded in their approach Tuesday, noting solid demand, while still noting the need to hold costs down in the face of higher inflation and expectations for economic growth to moderate, but not collapse.
"We're not doing anything in anticipation of a recession," said Paul Jacobson, General Motors Chief Financial Officer, during a call Tuesday, after the company posted better than expected results and forecast a better 2023 than analysts expected. The S&P 500 companies reported an increase in revenue by 4.5% year-over-year. That's better than what was expected on January 1, but short of last year's double-digit growth rates and is expected to slow in the first half of 2023, according to Refinitiv, motivating the cautious outlook.
We want to be cautious. GM's Jacobson said that he was talking about a $2 billion cost-cutting program.
GM isn't alone. Exxon said it would cut spending even after it reported a record $56 billion profit in 2022, and UPS exceeded estimates due to reducing expenses.
The hundreds of thousands of technology job layoffs announced by Microsoft, Intel and others are not being mirrored in the rest of the economy. According to Lori Calvasina, equity analyst at RBC Capital Markets, that's a good sign for the broader economy.
She wrote on Monday that the soft landing thesis is supported by the lack of major layoffs in the industrial segment of the economy. Calvasina said the market's recent performance may reflect expectations for a mild downturn followed by a solid recovery in 2024.
The S&P 500 has gone up 4.6% in January, the best first month for the index since 2019. The U.S. economic growth came in at a better than expected 2.9% rate for the fourth quarter. It's early, but the first-quarter GDP estimate of the Atlanta Federal Reserve Bank is 0.7%.
The economy's performance may depend on whether price pressures that have afflicted consumer and business spending start to wane. There is evidence that the core personal consumption expenditures PCE price index rose at a 5% year-over-year rate in December, the lowest since September 2021.
The rate is still pressing the margins, according to several executives on Tuesday. Inflationary pressures remained stubbornly high during the fourth quarter, and it was suggested by Caterpillar executives that pricing pressures will continue, after expecting them to moderate during the company's previous earnings call. Cat's fourth-quarter earnings dropped by 29%.
The feeling around the economy is positive.
As we go into 2023, there is going to be inflation, said Christopher Kempczinski, McDonald's CEO, on the company's earnings call Tuesday. Consumer sentiment in many markets remains depressed. We're not seeing it right now.