What Does America’s Confusion About The Economy Mean For Business?

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America has reached the point of mass confusion. As far as the economy is concerned, things are red hot. While the stock market set no new records last week, the Dow Jones Industrial Average, S&P 500 and Nasdaq composite are all still flying high. GDP continues to grow and unemployment is at a near-historic low, though first-time unemployment claims are starting to rise.

On the flip side, more than half of U.S. consumers think we’re currently in a recession, according to a Harris Poll survey conducted for the Guardian. Nearly half thought the S&P 500 stock index was negative this year, and 49% thought unemployment was at a 50-year high. It isn’t just this study, either. Consumer confidence is at its lowest level since July 2022, according to the Conference Board’s latest readings.

While part of this economic dichotomy can be attributed to the rise of online disinformation and fewer people reading well-reported business news, it isn’t the only problem here. Forbes senior reporter Derek Saul writes inflation has persisted in the post-pandemic years. Although it’s moderated from a four-decade high of 9.1% in June 2022 to 3.4% last month, many prices have yet to recede. Wages haven’t kept up with inflation, either. Since January 2021, the consumer price index has risen 19.3%, while average hourly wages have increased by 16.1%. So even without considering costs, most average consumers find their money isn’t going as far as it used to. Conference Board Chief Economist Dana M. Peterson said, “elevated price levels, especially for food and gas, dominated consumer’s concerns, with politics and global conflicts as distant runners-up.”

What this means for business is complicated, especially because the picture differs by industry. Target reported declines across the board in its quarterly earnings last week, stemming from fewer customers spending less money at its stores. However, Nvidia soared as it reported more than 600% profit growth compared to last year. At the core, businesses should keep an eye on how their customers see the economic situation and respond accordingly: through lower prices, payment flexibility or marketing campaigns. And whenever the Federal Reserve opts to cut interest rates—which chairman Jerome Powell has still said could happen this year—it’s important to pass those savings on to customers.

ARTIFICIAL INTELLIGENCE

Nvidia once again shattered expectations and records when it reported quarterly earnings last week. The AI chip designer’s profits were up 628% compared to the same time last year, and its revenues were 268% higher. It was Nvidia’s most profitable quarter ever, with gross profits of $20.4 billion, a staggering $15.8 billion year-over-year increase. Unsurprisingly, the sharpest increase was in Nvidia’s data center business, which makes the chips that largely power the AI revolution. Data center revenues hit a record $22.6 billion, making up nearly 87% of the company’s total revenues. Nvidia is currently worth $2.3 trillion, making it the world’s third most valuable company behind Microsoft and Apple. And CEO Jensen Huang, who has a 3.5% stake in Nvidia, saw his net worth increase more than $7 billion, landing him on Forbes’ list of the top 20 wealthiest people.

As with most companies providing goods or services to facilitate the AI revolution, the tide of Nvidia’s rising stock following its earnings lifted several other tech stocks. Taiwan Semiconductor Manufacturing Company, Arm Holdings, Dell Technologies, Super Micro Computer Inc. Advanced Micro Devices (AMD) and ASML Holdings also saw their share prices increase in the hours after Nvidia’s earnings report. Many of the other top tech stocks—known as the “Magnificent Seven”—ended Thursday at a loss, quite possibly because investors interested in buying Nvidia may have needed to sell other shares, though the markets as a whole recovered on Friday.

The massive bump to Nvidia’s share price seems to further the argument that hype around the new technology is fueling an “AI bubble,” which is in danger of bursting. However, Nvidia’s gains are based on actual sales and early orders from the company’s more powerful Blackwell line are slated to get to buyers this quarter. The level at which AI sales continue is still unknown, but one other product announcement made last week—Microsoft’s built-for-AI Copilot+ PC—will at least provide more actual sales metrics.

LEGAL ISSUES

The Biden administration is flexing its antitrust muscles again, filing a lawsuit against Ticketmaster and its parent company, Live Nation, last week. Thirty state attorneys general joined in the litigation, which demanded the mega-company be restructured. Live Nation bills itself as the world’s largest live music production company and owns or controls more than 265 concert venues in North America, while Ticketmaster is the leader in event ticketing and marketing, controlling more than 80% of major concert venues’ tickets. The two companies’ 2010 merger allowed it to exercise a monopoly over the live events industry, costing fans more in fees, giving artists fewer opportunities for concerts, squeezing out smaller promoters, and forcing venues to use its ticketing services, Attorney General Merrick Garland said in a release. Live Nation responded on its website that it’s “absurd” to claim it wields monopoly power, and argued Ticketmaster’s fees are competitive with other providers.

The Wall Street Journal first reported on the potential of this lawsuit in April, and Forbes senior contributor Peter Cohan, who had written about the Live Nation-Ticketmaster merger in a business school case, then broke down the issues at stake and the likely outcomes. Cohan wrote that ticket prices have soared since 2010—especially since Ticketmaster can automatically hold back tickets for secondary markets, where they receive enormous markups from face value. And despite a provision in the merger agreement prohibiting Live Nation from threatening to keep concerts from venues that don’t use Ticketmaster, the Justice Department in 2019 found Live Nation had done that. However, Cohan wrote, analysts predicted Live Nation would choose to settle the litigation and make some policy changes.

SUSTAINABILITY

Companies in some industries have been working toward becoming more sustainable for years, but energy providers are moving at a slower pace. In the last three and a half years, the Biden administration has created $1.6 trillion worth of federal grants for energy companies to pursue sustainable policies, so companies have the funds. But, as Forbes senior contributor Dipka Bhambhani writes, something else is standing in their way: politics. With a contentious election just six months away and Republican candidate and former President Donald Trump literally promising oil executives that he’ll reverse clean energy policies if elected, some companies are pressing pause on their plans. Matt Leggett, a partner in the policy and law group at K&L Gates, said it is possible that a Trump administration and Republican-dominated legislature could scuttle all of the credits and incentives toward clean energy.

Many companies are pressing forward, noting that incentives are based on states and industries, and may be difficult to just cancel. “While you have this political instability every two years, every four years that may call into question discrete energy policies, the long-term trend is clearly in favor of supporting an energy transition,” Leggett told Bhambhani.

FACTS + COMMENTS

As the summer travel season begins—as well as enforcement of the Department of Transportation’s mandate that passengers facing cancellations and delays can change their plans without fees—budget carriers Frontier and Spirit Airlines have dropped many of their fees.

$64: Previous cost for a carry-on bag on a Frontier flight. Now, they are free

$69 to $119: Previous change fees for Spirit Airlines

‘We deliver the best price for all the options you want and customer support you need, when you need it’: Announced Frontier CEO Barry Biffle

STRATEGIES + ADVICE

Work keeps CEOs extremely busy, but it’s important to have a hobby for mental health reasons and to improve leadership skills. Here are some suggestions to fill your spare time.

It can be hard to do a full digital transformation in your business, especially if you’ve been doing things the same way for a long time. PepsiCo uses a piloting program called PepsiCo Labs to try out changes. Here are some lessons you can learn from their approach.

VIDEO

QUIZ

Last week, shares of Hims & Hers Health hit a three-year high. What did the company announce to ignite the rally?

A. It plans to acquire weight loss app Noom

B. It’s adding a slate of primary care physicians to provide virtual all-around healthcare

C. It’s become a licensed distributor of marijuana and CBD in 10 states

D. It has a new weight loss drug like Ozempic and Wegovy, but at a fraction of the price

See if you got the answer right here.