How bad is the US recession? Investors are about to find out

Responding to questions from House Judiciary Committee Chairman Rep. Jerry Nadler, Facebook CEO Mark Zuckerberg admitted that he viewed Instagram as a "competitor" before the social media giant purchased the company, as newly-revealed emails raise questions about the $1 billion 2012 deal.

Posted: Jul 30, 2020 6:01 AM
Updated: Jul 30, 2020 6:01 AM

This spring, the US economy was put into an unprecedented deep freeze — and economists, investors and policymakers are about to learn the extent of the damage done.

What's happening: The US Bureau of Economic Analysis is due to release its first estimate of GDP for the April-to-June quarter on Thursday.

Economists polled by Refinitiv expect an annualized contraction of 34.1%. That would be the worst quarter since the agency started keeping quarterly records in 1947, and four times worse than the decline experienced as a result of the 2008 financial crisis.

Economists predict GDP will jump sharply in the current quarter. The Federal Reserve Bank of New York expects an annualized increase of 13.3% between July and September.

But that bounce depends in large part on the health of the American shopper, whose spending accounts for roughly two-thirds of the country's economic output.

It's not clear the rebound in consumption will hold up as coronavirus infections rise across much of the country, triggering a host of fresh restrictions. Already, high-frequency data is showing signs of weakness.

See here: Initial claims for unemployment benefits are expected to rise for the second week in a row. Economists surveyed by Refintiv predict that another 1.45 million claims were made for the week ending July 25, up from nearly 1.42 million the week prior.

The employment situation in the United States stands in stark contrast with Germany, which on Thursday reported that the unemployment rate in June was virtually unchanged compared to May, even though the country experienced its worst contraction in output since records began in 1970. That's largely due to the country's reliance on short-time work programs.

The German economy shrank 10.1% between April and June compared to the previous quarter due to historic declines in investment, consumption and exports.

That's worse than expected. But economists think it still indicates the strength of the recovery starting in May.

"Available hard data point to peak contractions of around 29% for industrial production and 15% for the services sector in April," Goldman Sachs economist Sören Radde said in a note to clients. "The quarterly growth rate of -10.1% is therefore consistent with a relatively fast rebound of both sectors."

Big Tech to report earnings after grilling from Congress

How did the most powerful tech companies in the world fare during what was probably the worst three months for the US economy on record?

That's the question from investors as Apple, Amazon, Facebook and Google-owner Alphabet report earnings on Thursday.

What these four companies have to say will carry a lot of weight.

"Thursday after the bell will be a seminal night for the Street to digest how these tech stalwarts are faring during the dark Covid storm," Wedbush Securities analyst Daniel Ives said in a research note. "Will these results/guidance be enough to keep the tech rally going or cause a red light for investors?"

Apple, Amazon, Facebook and Alphabet have helped drive the S&P 500's miraculous recovery since March, and the four companies now account for 18% of the index's value. Investors like that their online businesses are shielded from some of the direct impacts of the pandemic, and see growth potential in higher sales of cloud services and better user engagement.

But there are key questions about the outlook. Facebook and Google will need to answer questions about the health of advertising sales, while Amazon will be expected to demonstrate that it can maintain substantial growth in its cloud services division while keeping a lid on delivery costs. The release schedule for Apple's 5G iPhones has also been called into doubt.

This, too: The earnings announcements come one day after the leaders of these companies were hit with tough questions from US lawmakers armed with internal company documents that raised concerns about their competitive tactics.

Watch this space: Amazon CEO Jeff Bezos acknowledged that there is a policy that prohibits the use of third-party seller data to support Amazon's own private-label business. But, he admitted, "I can't guarantee you that policy has never been violated."

Kodak is reinventing itself, and investors are obsessed

Kodak, the former photography giant, is reinventing itself as a drugmaker — and investors are ecstatic.

The New York Stock Exchange had to halt the trading of Kodak shares 20 times on Wednesday after the company's stock skyrocketed for the second day in a row.

Following a more than 200% jump in Tuesday trading, shares gained 318% on Wednesday. At one point, they were up more than 650%.

The backstory: Kodak rebranded as a producer of materials and chemicals after its bankruptcy in 2012. Now it's pivoting to pharmaceutical ingredients with the help of a $765 million government loan from the Trump administration, part of an effort to reduce dependence on foreign drug makers.

The company already makes key materials for some pharmaceuticals, easing the transition, Kodak CEO Jim Continenza told CNN Business' Julia Chatterley on Wednesday.

The loan is the first of its kind under the Defense Production Act, and will allow Kodak to remodel and expand facilities in Rochester, New York and St. Paul, Minnesota over the next three years. The company aims to produce 25% of the active ingredients used in Americans' generic medicines.

Up next

US initial unemployment claims and the first estimate of second quarter GDP post at 8:30 a.m. ET.

Also today: Anheuser-Busch InBev, AstraZeneca, Comcast, Kraft Heinz, Mastercard, Molson Coors, Procter & Gamble, UPS and Yum Brands report earnings before US markets open. Alphabet, Apple, Amazon, Facebook and Ford will follow after the close.

Coming tomorrow: The first reading of second quarter GDP arrives for the 19 countries that use the euro.

California Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 578946

Reported Deaths: 10523
CountyConfirmedDeaths
Los Angeles2108744999
Riverside41983820
Orange40527724
San Bernardino36072546
San Diego32975594
Kern24995183
Fresno17846171
San Joaquin13870235
Alameda13631205
Santa Clara12962207
Sacramento12274179
Tulare11549198
Stanislaus10264169
Imperial9867244
Contra Costa9787146
Ventura874093
San Francisco769267
Santa Barbara699672
San Mateo6431122
Merced573670
Monterey549437
Marin540481
Kings445356
Solano427441
Sonoma375350
Madera246339
Placer237724
San Luis Obispo227817
Yolo183444
Santa Cruz12876
Butte12388
Napa112911
Sutter9967
San Benito7654
El Dorado7552
Lassen6830
Yuba6664
Mendocino47210
Shasta46910
Glenn4363
Colusa3965
Nevada3571
Tehama3031
Humboldt2864
Lake2402
Amador1853
Mono1581
Tuolumne1552
Calaveras1471
Inyo1063
Siskiyou1020
Del Norte1000
Mariposa622
Plumas360
Modoc50
Trinity50
Sierra40
Alpine20
Unassigned00
Chico
Clear
68° wxIcon
Hi: 96° Lo: 67°
Feels Like: 68°
Oroville
Clear
67° wxIcon
Hi: 99° Lo: 67°
Feels Like: 67°
Paradise
Clear
68° wxIcon
Hi: 90° Lo: 69°
Feels Like: 68°
Chester
Clear
61° wxIcon
Hi: 82° Lo: 51°
Feels Like: 61°
Red Bluff
Clear
71° wxIcon
Hi: 98° Lo: 66°
Feels Like: 71°
Willows
Clear
68° wxIcon
Hi: 100° Lo: 60°
Feels Like: 68°
Warm temperatures and a Red Flag Warning for high fire danger are ahead for our region today. The heat ramps up this weekend and that will prompt an Excessive Heat Watch for the valley and foothills.
KHSL Severe
KHSL Radar
KHSL Temperatures

Community Events