Amazon's recession indicator, according to an expert

Why Amazon Is a Key Recession Indicator: Investment Expert

Evolution VC Partners founder Gregg Smith has argued that Amazon is a key indicator of the recession and that the company’s upcoming earnings report will be “very revealing” about what is happening in the economy. world.

Speaking on “Varney & Co.” On Wednesday, the investment expert pointed out that “Amazon’s dialogue and what they say to investors about a month from now will be very telling of what’s going on with the economy.”

He said he thinks the company’s earnings release “is going to give us some interesting insight into the consumer” and “what’s going on with consumer spending.”

“Their Amazon Web Services business, AWS, which is a $60 billion+ giant, is going to tell us what’s going on with business spending. Do we see companies starting to cut spending and looking to reduce their costs ?” He continued.

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He went on to note that the tech giant’s “huge media business, which generates over $30 billion in revenue,” will shed light on “what’s happening from the business to the customer in terms of reducing expenses”.

Smith pointed out that “the big question” lately is whether a recession is inevitable as inflation sits at 40-year highs and some companies have begun to cut staff as the Federal Reserve tries to tame scorching inflation by raising rates.

A recession refers to a contraction in gross domestic product (GDP) activity, the broadest measure of goods and services produced in the entire economy, for two consecutive quarters.

Smith provided the information on Wednesday shortly after GDP activity was revealed to have shrunk at a worse-than-expected 1.6% annual pace in the first quarter, according to the Commerce Department’s final reading. The figure is slightly higher than the department’s first and second readings.

Many economists and analysts wonder if the Fed can successfully engineer the elusive soft landing — the middle ground between cutting demand to cool inflation without plunging the economy into a slowdown. Rising interest rates tend to create higher rates on consumer and business loans, which slows down the economy by forcing employers to cut spending.

Amazon's recession indicator, according to an expert

Amazon is a key recession indicator given its footprint on the economy and markets, says Gregg Smith, founder of Evolution VC Partners. (Reuters/Reuters Pictures)

Earlier this month, the Fed raised its benchmark interest rate by 75 basis points for the first time in nearly three decades as policymakers intensified their fight to calm inflation.

Earlier this month, Federal Reserve Chairman Jay Powell sought to assure Americans that higher rates would not trigger a recession and that policy tightening was needed to bring prices under control.

Smith noted on Wednesday that he was a venture capitalist and that in analyzing his portfolio of more than 200 private companies, he realized that “there is a very big difference between what they hear and what they see”.

“A lot of people are seeing amazing business, especially those that deal with the consumer, who have consumer businesses, their businesses are very strong,” he told host Stuart Varney.

He then argued that due to “media rhetoric” and “saber reports from some of the major venture capital firms as winter approaches”, companies are becoming defensive and bracing.

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“So that leads to preventive layoffs,” Smith said.

“They’re eliminating the projects they’re working on. They’re losing real estate and getting smaller footprints — so all of that puts pressure on the economy as they get defensive and put themselves in a defensive position.”

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