American businesses are experiencing a mixed bag of results in the wake of the tech boom. While some sectors are thriving and benefiting from advancements in artificial intelligence (AI), others are facing significant challenges. The S&P 500 index, which tracks the performance of major American firms, has seen a boost of nearly 20% this year, largely driven by the excitement surrounding AI and the hope for a soft landing in the economy.
Tech companies and carmakers are particularly favored by investors and have reported solid second-quarter results. However, the broader American economy, which is less influenced by the tech boom, presents a more complex picture. Some industries, such as healthcare and energy, are struggling. Health-care companies have seen their profits decline by almost 30%, and CVS Health has announced significant job cuts following a 37% drop in earnings. Energy firms have also seen a sharp decline in profits, with a 50% decrease in the second quarter of this year compared to last year.
However, it is important to note that the pain is not evenly distributed across all sectors. Capital-goods manufacturers, such as Caterpillar and Raytheon, have actually seen their revenues increase by more than 8% in the second quarter, thanks in part to President Joe Biden’s focus on industrial policy. Even oil-and-gas giants, like ExxonMobil, have not fared as poorly as the headline numbers suggest. While their net profit is down 56% year on year, they still recorded their highest second-quarter figure in nearly a decade.
The resilience of American businesses is most evident in sectors closely tied to consumer spending. Consumer staples, such as foodstuffs and household goods, have seen a 5% rise in profits, while non-staple consumer goods have experienced a significant earnings increase of 40%. Companies like Starbucks and Kraft Heinz have reported substantial operating profit gains, driven by strong consumer demand. Consumer-goods companies have also managed to maintain pricing power, exemplified by confectioners charging 11% more for chocolates compared to last year.
Other industries benefiting from the recovery are air travel and hospitality. American Airlines, Delta Air Lines, and United Airlines collectively reported their highest net profits since 2015, and hotels are enjoying robust pricing power with a 12% increase in revenue per available room for Hilton.
While the current economic outlook appears positive, there are potential challenges on the horizon. As consumers gradually spend down the savings accumulated during the pandemic, the rate of spending is likely to slow. Rising interest rates could curb demand and make it harder for companies to raise prices, leaving profit margins vulnerable. Weak balance sheets may also face difficulties with higher rates, potentially leading to more bankruptcies. Furthermore, the possibility of a recession cannot be completely ruled out, with some financial institutions predicting a downturn in the next year or two.
In conclusion, the American business landscape offers a mixed picture of success and challenges. While industries closely associated with the tech boom and consumer spending are thriving, others, such as healthcare and energy, are facing significant difficulties. The long-term sustainability of the current positive trends will depend on various factors, including consumer spending habits, interest rates, and the overall health of the economy. Businesses must navigate the evolving landscape and remain adaptable to succeed in this dynamic environment.
