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Record corporate profits stopped the recession, Mark Zandi says



Corporate profits hit record highs in the fourth quarter of last year. But corporations aren’t the only ones riding high: The supercharged bottom lines of America’s biggest companies may have helped boost the entire country’s economy, keep people employed, and avert a recession

Overall, the U.S. economy has been rounding the corner on some of its pandemic-era slumps. Inflation is coming down, certainly compared to the highs in summer 2022, unemployment remains below 4%, and the GDP is still growing at a healthy pace. In fact, the Commerce Department recently issued an upward revision of its fourth quarter annualized GDP growth rate, bumping it up to 3.4% from 3.2%. 

That strength has made its way to the corporate world too, where profits soared for America’s biggest companies. The last quarter was the most profitable of the year, and one of the best ever for corporate America. In the final quarter of 2023 corporate profits after taxes stood at $2.8 trillion, a $105 billion increase from the previous quarter, per the Commerce Department’s data. That means that corporate profits accounted for about 10% of the total quarterly GDP—slightly lower than in the first three quarters of the year where corporate profits accounted for between 10.3% to 10.5% of GDP.

Many consumer and worker advocates have taken these figures as a sign that corporate “greedflation” is contributing to Americans’ economic malaise and (still) pushing up the cost of living. Frustrations about pricing at the grocery store and the gas pump have especially acute effects on people’s feelings about the economy, and even more so when the companies that make their food seem to be raking it in, as several reports have found. Over the past few years words like “greedflation” and “shrinkflation” have reappeared to denounce companies’ seemingly unstoppable march toward charging consumers more for smaller quantities.

But according to one top economist, that’s all backwards. Corporate profits allowed companies to avoid massive layoffs and keep the economy afloat, says Moody’s Analytics chief economist, Mark Zandi.

Fat profit margins meant that companies weren’t under financial pressure and had the possibility to keep more of their workers on staff when lending conditions changed when the Fed started hiking interest rates, Zandi says. The fact that people remained gainfully employed and not on unemployment kept the economy afloat at what was otherwise a very precious time. 

“The gangbuster gain in profits helps explain why businesses have been able and willing to hold the line on layoffs, which was key to avoiding recession,” Zandi wrote on X

When companies expect to have healthy bottom lines they’re less likely to feel as though a change is warranted. A profitable company thinks to itself: “If it ain’t broke don’t fix it,” Zandi told Fortune in a phone interview. “Only when they lose money, or expect to, does the pressure intensify to make changes like layoffs.” 

Zandi points out that layoffs are a prerequisite for a recession because they shake the confidence of all consumers. “It’s the layoffs that spook consumers and cause them to run into the bunker and stop spending,” he says. 

In the U.S., where consumer spending accounts for about two-thirds of the economy, keeping people feeling confident enough to spend is critical to keeping the economy chugging ahead. So far, it seems like that heavy spending has successfully staved off a recession. In recent months economists, Federal Reserve officials, and some of Wall Street’s major banks have all lowered the chances that the U.S. will fall into a recession. Much of the credit goes to the American consumer, who has remained resilient, and as Zandi would argue, employed. 

That’s not to say that some companies haven’t laid off employees—they have. Many household names such as Citigroup and big tech companies like Meta, Alphabet, and Microsoft, cut thousands of workers at the start of this year. However, their layoffs said more about their own businesses than the broader economy, according to Zandi. Citi was far less profitable than its peers; and the tech companies “overdid it” when they “hired very aggressively during the teeth of the pandemic,” Zandi says. 

When well-known companies lay off workers, it can cause fears over the broader economy, despite the fact they represent a small portion of the overall workforce. In fact, the latest employment numbers show a continued growth in the number of people getting new jobs. Even though unemployment ticked up to 3.9% in February, the U.S. still added 275,000 new jobs, which still beat estimates from Wall Street. And federal data that tracks applications for jobless aid indicates that, economy-wide, layoffs remain at very low levels.

Americans won’t stop spending

The ripple effects of American consumers’ hearty appetite for spending are felt across the economy, Zandi says. “It also helps explain the record stock market, and the resulting positive wealth effects and resilient consumer spending,” he wrote on X. 

Consumer spending has had a solid start to the year. In February, consumer spending jumped 0.8%, the largest monthly increase in over a year. However, analysts and observers are still keeping a close eye on spending trends, given some softer than expected reports. Especially worth watching are the spending habits of lower income households, Zandi says. Many of them didn’t see their overall wealth increase when stock prices and home values soared, simply because they didn’t own either, and if times start to get tough they’ll be the first to cut back. “If they pull back then that may be the first indication that consumers more broadly are pulling back,” Zandi said. 

Despite their continued spending, consumers aren’t completely upbeat on the current economic moment. In February consumer optimism hit a two-year high, according to a report from McKinsey. Conversely, the same report found that 20% of consumers said they were pessimistic and felt pressure to save for a rainy day. 

Their confusion is understandable. Consumers are still in the strange position of paying higher prices for the most critical and conspicuous products they buy, despite all evidence that price hikes are slowing down. Gas prices are up 9% since December and grocery prices outpaced overall inflation, staying high even while other types of goods decline in price. 

Zandi called out the seeming unfairness of companies asking consumers to pay higher prices while they themselves reaped hefty profits. “The fat margins should weigh on inflation as competition heats up,” Zandi said. “But the adage that ‘prices rise like rockets and fall like feathers’ holds true. Policymakers should shine a bright light on businesses’ pricing practices and work to ensure markets are competitive.

President Joe Biden himself has regularly called attention to some of the practices of consumer goods companies that have simultaneously raised prices and reduced the size of their products. He even did a PSA before the Super Bowl where he was flanked by popular pantry staples like Oreos, Doritos, and Goldfish, urging companies to stop the practice. “It’s a rip off,” Biden said.

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United Airlines (UAL) 1Q 2024 earnings



A United Airlines Boeing 737 Max 9 aircraft lands at San Francisco International Airport.

Justin Sullivan | Getty Images

United Airlines on Tuesday cut its aircraft-delivery expectations for the year as it grapples with delays from Boeing, the latest airline to face growth challenges because of the plane-maker’s safety crisis.

United expects to receive just 61 new narrow-body planes this year, down from 101 it said it had expected at the beginning of the year and contracts for as many as 183 planes in 2024.

“We’ve adjusted our fleet plan to better reflect the reality of what the manufacturers are able to deliver,” CEO Scott Kirby said in an earnings release. “And, we’ll use those planes to capitalize on an opportunity that only United has: profitably grow our mid-continent hubs and expand our highly profitable international network from our best in the industry coastal hubs.”

United said it plans to lease 35 Airbus A321neos in 2026 and 2027, turning to Boeing’s rival for new planes as the U.S. manufacturer faces caps on its production and increased federal scrutiny. In January, United said it was taking Boeing’s not-yet-certified Max 10 out of its fleet plan. The airline said it has converted some Max 10 planes for Max 9s.

It lowered its annual capital expenditure estimate to $6.5 billion from about $9 billion.

United is also facing a Federal Aviation Administration safety review, which has prevented some of its planned growth. A spokeswoman told CNBC earlier this month that the carrier will have to postpone its planned service from Newark, New Jersey, to Faro, Portugal, and service between Tokyo and Cebu, Philippines.

United earlier this month postponed its investor day, which was scheduled for May, “because our entire team is focused on cooperating with the FAA to review our safety protocols and it would simply send the wrong message to our team to have an exciting investor day focused primarily on financial results.”

The airline said it would have reported a profit for the quarter if not for a $200 million hit from the temporary grounding of the Boeing 737 Max 9 in January.

The FAA temporarily grounded those jets after a door plug blew out minutes into an Alaska Airlines flight, sparking a new safety crisis for Boeing and slowing deliveries of its planes to customers including United, Southwest and others.

The airline posted a net loss of $124 million, or a loss of 38 cents a share, in the first quarter compared with a $194 million loss, or 59 cents, a year earlier. Revenue rose nearly 10% in the first quarter compared with the year-earlier period to $12.54 billion, with capacity up more than 9% on the year.

Here’s what United reported in the first quarter compared with what Wall Street expected, based on average estimates compiled by LSEG:

  • Loss per share: 15 cents adjusted vs. a loss of 57 cents expected
  • Revenue: $12.54 billion vs. $12.45 billion expected

The airline expects to post earnings of between $3.75 and $4.25 in the second quarter, ahead of analysts’ estimates of about $3.76 a share. Airlines make the bulk of their profits in the second and third quarters, during peak travel season.

The carrier also reiterated its full-year earnings forecast of between $9 and $11 a share.

United’s shares were up more than 4% in after-hours trading on Tuesday.

United executives will hold a call with analysts at 10:30 a.m. ET on Wednesday.

Don’t miss these exclusives from CNBC PRO

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Ex-Post Office boss regrets ‘missed opportunity’ to halt Horizon scandal



“On reflection, and I have reflected on this very hard, when I finished being the Horizon programme director [in early 2000] it would have been very beneficial if I had notified both the lawyers and the [investigations team] that Horizon was a new system coming in, and that they should be very cautious about evidence coming out of that system,” he said.

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Sri Lanka’s economic crisis and debt restructuring efforts By Reuters




COLOMBO (Reuters) – Sri Lanka’s government rejected a proposal from its international bondholders on Tuesday on restructuring the more than $12 billion the country owes to them.

It means a near two-year spell in default will drag on for Sri Lanka and that the country’s next tranche of vital IMF support money could potentially get delayed.

Below is a timeline of the key events in the crisis and the efforts to resolve it:

2021-2022: Sri Lanka’s economy crumbles after years of overspending leaves its foreign exchange reserves critically low and the government unable to pay for essentials, such as fuel and medicine.

The country’s bonds suffer from multiple downgrades by credit rating agencies warning of the increasing risk of default. At the start of 2022 it manages to make a $500 million bond payment but it leaves its foreign exchange reserves precariously low.

MAY, 2022 – Sri Lanka is declared in default after it fails to make a smaller $78 million bond coupon payment.

JULY, 2022 – Public anger drives protesters to storm then-President Gotabaya Rajapaksa’s office and residence. Rajapaksa flees to the Maldives, before moving on to Singapore.

Current President Ranil Wickremesinghe is voted into power by Sri Lankan lawmakers.

MARCH, 2023 – The International Monetary Fund approves a near $3 billion bailout for Sri Lanka after talks with Wickremesinghe’s government and assurances about its plans to repair the country’s finances.


Sri Lanka announces an agreement with China’s EXIM (export/import) Bank to delay payments on about $4.2 billion worth of loans the Chinese lender it has extended to the country.


Other creditor nations including India, Japan and France agree to restructure about $5.9 billion in debt.

MARCH, 2024

A group of Sri Lankan officials arrives in London to meet with a number of investment funds that hold its more than $12 billion worth of government bonds. Talks advance to the key “restricted” phase where proposals are discussed privately and those involved agree not to buy or sell any of the debt on the open market.

© Reuters. FILE PHOTO: A general view of the main business district as rain clouds gather above in Colombo, Sri Lanka, November 17, 2020. REUTERS/Dinuka Liyanawatte/File Photo

APRIL, 2024

The government rejects a proposal tabled by the bondholders. The main stumbling blocks are that some the “baseline” assumptions used differ to those of the IMF and that the plan did not include a contingency option for the government in case the economy fails to recover as expected.

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