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The stock markets are thinking about new questions about where the economy is heading

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A barrage of divisive economic signals, combined with plunging technology stocks, caused financial markets to close in April at a low point last seen when the pandemic began in March 2020.

Uncertainty about the trajectory of the economy played a role in market turmoil on Friday as the technology-heavy Nasdaq closed 4.2 percent for the day and the Dow Jones industrial average lost 939.18 points, or 2.8 percent. The S&P 500 fell 3.6 percent on Friday, erasing 9.1 percent of value in April, its worst month since March 2020. And that’s a drop of 13.8 percent in 2022, the worst start to the year since World War II.

The economy is being pulled in several directions at once, burdened by soaring energy, food and housing prices, while being supported by a huge labor market, pent-up demand, high-savings consumers and continued strong business investment. The next few weeks may determine which economic forces are prevalent and shape the fortunes of households and businesses on the road to midterm elections.

“The market is concerned about a very fragile economic outlook, as it should be,” said Joe LaVorgna, chief economist at America at Natixis and former White House economic adviser to Trump. “The economy is fundamentally soft: the Fed will rise next week, the situation in Ukraine will not improve, and high inflation will cut costs.”

At the same time, holiday reservations are rising, car sales are booming, and Americans continue to spend money, thanks to higher wages and quick hires. Nevertheless, the economy unexpectedly collapsed in the first quarter, led by a trade deficit and a decline in inventory purchases.

The divergent trajectories of the economy unfolded in a trade report on Friday, showing increases in both consumer spending, up more than expected in March, and inflation, which shot up in March by most for more than 15 years.

Dow tanks 900 points as the S&P 500, Nasdaq posts the worst month since March 2020

“There are so many factors pulling on our economy right now – the uncertainty and low numbers – despite the fact that demand is so high,” said Tara Sinclair, an economics professor at George Washington University. “It can be worrying, because when companies and decision makers – from household to Fortune 500 companies – start worrying about the ‘R’ word, it can become a bit of a self-fulfilling prophecy.”

On Capitol Hill, politicians are throwing themselves over widely divided numbers to support their political efforts ahead of the critical midterm elections of 2022. Two years after the worst economic crisis in generations, there may be no problems that will motivate Americans more at the ballot box than their own state of finance.

Democrats insisted this week that the 1.4 percent annual decline in gross domestic product reflected broader economic gains – from new deficits in global supply chains to the evolving consequences of Russia’s invasion of Ukraine. As they have been doing for months, party lawmakers instead sought to highlight other, more encouraging indicators, including a continued explosion in employment, low unemployment and persistent consumer spending, all under Biden’s watch.

“That’s not a good sign,” Senator Richard J. Durbin (D-Ill.), The majority whip, said of the GDP figures during a brief interview. “[But] there are enough positive indicators to turn things around. “

The economy shrinks 1.4% in the first 3 months of the year, increasing fears of recession

Meanwhile, for Republicans, the economic contraction provided fresh fodder to intensify their opposition to Democrats’ legislative solutions in light of a potential sea change in November that could elevate them to majority power. Few GOP lawmakers are expected to support any of the Democrats’ efforts to fight inflation, for example, as Republicans instead blame Biden’s spending policy.

“They’re hurting our economy,” said Senator Rick Scott (R-Fla.), The leader of the National Republican Senatorial Committee, which aims to elect party lawmakers to the chamber. “It makes it hard for people to get back to work.”

Companies across sectors are feeling the economic crosswind. For example. Strong sales of Apple Watches, iPhones and MacBooks in the first three months of the year helped drive Apple’s record highs of $ 97.3 billion. But looming concerns about the war in Ukraine and lockdowns of coronavirus in China, including supply chain snares, could end up costing the company $ 8 billion this quarter, Apple reported. Apple closed Friday at 3.7 percent.

And Amazon led to market losses on Friday with a 14 percent drop, the largest one-day sale in 16 years. This followed a weaker earnings report as the company posted its first major quarterly loss since 2015 this week, due to a loss on its investment in electric car maker Rivian.

“There is no doubt that the market is pricing a recession,” said Anthony Chukumba, an analyst at Loop Capital Markets. “When you see bell-ready like Netflix and Amazon miss out on numbers with a land mile, it’s worrying – especially when it’s happening in the tech field, which has been the market leader for so long.” (Jeff Bezos, the founder of Amazon, owns The Washington Post.)

Agricultural and construction equipment company Caterpillar, which had a 14 percent increase in sales in the first quarter on Thursday, also warned that widespread barriers to coronavirus in China could push demand for excavators down later in the year. The company said it also handles ongoing shortages and delays for components such as semiconductors. Caterpillar closed 1 percent Friday.

“The environment continues to be challenging due to supply chain constraints and the recent covid-19-related shutdowns in China,” CEO Jim Umpleby told analysts during a earnings call this week.

One bright spot for the economy has been the labor market – which has added 1.7 million jobs so far this year. U.S. unemployment at 3.6 percent is close to record lows, and wages continue to rise.

“The economy hit a speed bump, but when you look under the bonnet, there are a lot of things you like,” said Ken Kim, a senior American economist at KPMG. “The good thing is that there is strength in the labor market. We are still optimistic about the US expansion for 2022 and do not see a recession on the horizon, either this year or next. “

But some economists say momentum is likely to slow later this year, especially as the Federal Reserve continues to raise interest rates in hopes of curbing inflation.

The Fed is scheduled to meet next week and is expected to raise interest rates by a further 0.5 percentage points, which will be the largest increase since the year 2000, and is likely to do so again in June. Investors are worried that the gloomy economic news could affect future interest rate hikes, which are also rattling the markets.

Fed officials, including President Jerome H. Powell, have said they aim to guide the economy towards a “soft landing”, avoid a recession, by raising interest rates just enough to cool inflation, even though economists say it will be difficult to find the right balance. .

“It’s hard to get from here to where the Fed wants to be on inflation without a rise in unemployment or a risk of recession,” said Diane Swonk, chief economist at auditing firm Grant Thornton, who expects unemployment to end in 2023 at. 5 percent. “When you skate on thin ice, it’s not hard to fall through.”

Business owners say they also feel the pain of insecurity.

At Delta Children’s Products, consumers have so far been happy to throw in furniture for babies and toddlers – even though the company has raised prices by as much as 25 percent to offset rising costs for raw materials and shipping. Sales have risen 12 percent this year on the company’s cribs, mattresses and strollers, which are sold at major retailers, including Walmart, Pottery Barn and Buy Buy Baby.

But President Joe Shamie says he is worried about the future. Birth rates are falling, which means he has a declining pool of buyers, and lockdowns in China continue to weigh on production and shipping. He is also concerned that consumers may soon start to retire if they start worrying about their own financial prospects.

“We’re extremely worried about what’s going to happen next,” Shamie said. “There are many gaps in the economy that need to be addressed.”

Aaron Gregg contributed to this report.

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