AILSA CHANG, HOST:
At first glance, American companies seem to be doing all right in the face of high inflation and rising interest rates. But underneath the surface, there are warning signs, and the country's top executives are getting nervous about what's to come. NPR's David Gura joins us now to explain. Hi, David.
DAVID GURA, BYLINE: Hey, Ailsa.
CHANG: OK, so what are companies seeing right now?
GURA: So companies have this unique insight into how the economy is doing and where it's headed. And in recent weeks, most of America's biggest ones have reported earnings. They've told us how they did over the last three months. And many of them did better than Wall Street expected, and markets have rallied as a result of that. This is remarkable because of all the challenges they've faced - high inflation, which did show signs of easing last month, even though prices rose at a pace of 8.5% year over year. Fed Reserve has been hiking interest rates aggressively.
Then on top of that, there are all these other headwinds, including the fallout from the war in Ukraine, supply chain issues. So companies have done pretty well despite all of that, but executives are coming across on calls with analysts as very cautious. Sundar Pichai, the CEO of Alphabet, which is Google's parent company, says he sees a moment like this as clarifying.
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SUNDAR PICHAI: It's a chance to digest and make sure we are working on the right things as a company.
GURA: Now, while Alphabet and other companies digest what's happening, many businesses are already taking action, Ailsa, as they brace for an economic downturn.
CHANG: Action. OK, so what steps are they taking?
GURA: Well, first and foremost, they're cutting advertising. And that's a bellwether because companies usually target their marketing budgets before they cut anything else. And the pullback that we're seeing is hitting media companies pretty hard. The New York Times Company saw digital ad revenue decline. BuzzFeed warned recession fears will put pressure on its advertising business. This is also hurting social media companies like Meta - Facebook's parent company - which relies on ads to make money. Its revenue fell for the first time ever. On Snap's earning call, its chief financial officer, Derek Andersen, said the economic uncertainty is crippling.
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DEREK ANDERSEN: We're seeing these various headwinds put pressure on the earnings of a wide variety of companies, and this is directly impacting the demand for advertising.
CHANG: Well, beyond ads, are companies, like, going as far as announcing layoffs now?
GURA: Well, the latest jobs data have shown the labor market is still strong. But what's potentially worrisome here is some companies are cutting staff, especially in the tech sector. The e-commerce giant Shopify just laid off 10% of its workforce. Robinhood, the maker of a stock trading app that became really popular at the beginning of the pandemic, has cut about 30%. Now, other companies we've talked about - Alphabet, Meta - they're hiring fewer new workers. And Mary Barra, the CEO of GM, said the carmaker is cutting spending and limiting hiring right now with an eye to the future.
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MARY BARRA: We have modeled several downturn scenarios and we are prepared to take more deliberate action when and if necessary.
GURA: We're seeing some companies, including Bed, Bath & Beyond, take a harder look at their expenses.
CHANG: But, David, what about consumers here - I mean, like the people giving their money to these businesses? What are companies even saying about how their customers are holding up?
GURA: Well, so far, people have continued to spend, although they are making adjustments as prices go up. Higher gasoline prices have been hard on households. They've come down a bit. The nationwide average price for a gallon of regular gas is now back below $4 - more than a dollar less than the record high in June. A couple of weeks ago, Walmart - of course, one of the world's largest retailers - sent a letter to its shareholders. And in that letter, it said its customers are spending more money on food. And we just learned that in July, food prices were up more than 13% from a year ago.
CHANG: Yeah.
GURA: Because Walmart's customers are spending more money on food, they're spending less money on other stuff Walmart sells, especially clothing. Walmart said that this is going to weigh on its bottom line, not just for this quarter, but also for the entire year. We're going to get Walmart's earnings next week, by the way. So we'll get a new indication, Ailsa, of how one of America's biggest companies is doing.
CHANG: That is NPR's David Gura. Thank you, David.
GURA: Thank you. Transcript provided by NPR, Copyright NPR.
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