The recession is calling — but it’s probably not paying its phone bill on time.
The inflation tax hit AT&T on Thursday, driving the company’s shares down nearly eight percent after it said its cash flow had taken a hit because customers were paying their phone bills later than they had. When you are a company the size of AT&T, even a little bit makes a big difference. Customers have been paying their bills about two days later than they did at the time last year, creating a $1 billion hit to cash flow for the quarter.
“There’s clearly some dynamics in the economy. We have customers that are stretching out their payments a little bit,” AT&T CEO John Stankey told CNBC in an interview Thursday. “We expect that they’re going to continue to pay their bills, but they’re taking longer to do it.”
Part of the problem is broad demand destruction from inflation, or what we have been calling the inflation tax. Costs of necessities like groceries and gas have gotten so high that Americans are having to pull back on making other purchases and payments. Part of it is also AT&T’s decision to raise its own prices. Mobile phones probably lay further toward the necessity side of the need-want spectrum for many customers, but the service is basically provided on credit, allowing customers to hold off on payments when times are tight. Banks providing credit cards will likely start to report similar delays in payments.
Philly Fed Fiasco and the Bleeding Economic Indicators
The Philadelphia Fed’s Manufacturing Business Outlook Survey came in with a big miss to the downside on Thursday. After falling to -3.3 in June, forecasters were looking for the number to return to positive territory, which would have indicated a return to expansion. Instead, it dropped even further into contractionary territory, all the way down to -12.3. That’s the worst reading since May of 2020, when the country was still staggering from the initial onset of the pandemic and nationwide lockdowns.
Even worse, the index for future general activity fell 12 points to -18.6, the lowest reading since December 1979. The share of firms expecting an increase in activity six months from now fell from 36 percent last month to 17 percent in July. The share expecting no change increased to 40 percent, up from 19 percent last month. The share expecting declines actually fell from 42 percent to 35 percent.
The new orders barometer is the weakest current conditions component of the index. The reading fell from -12.4 to -24.8 in the past month. Prior to the pandemic, the last time this index was this distressed was during the global financial crisis of 2008-09. This looks like more evidence of inflation-driven demand destruction.
From the Conference Board today, we learned that the index of leading indicators for June fell by more than expected. Economists had penciled in a 0.6 percent decline based on everything we already knew about June. The Conference Board said the index fell by 0.8 percent. Perhaps more importantly, the Conference Board said that the decline—which has been going on for four months—is pointing to a recession by sometime around the end of this year or early next year. Six out of the ten indicators were bleeding in June, meaning they were in negative territory.
A photo illustration showing a video tweet from President Joe Biden on July 21, 2022, announcing he has COVID-19. (Samuel Corum/AFP via Getty Images)
Biden Gets Covid
Yesterday, President Joe Biden told us that fossil fuels gave him and the people he grew up with cancer. Back in April, he told the same story but wound up with asthma instead. A recent medical report released by the White House clarified that Biden really did have skin cancers that were removed before his presidency—and likely caused by prolonged exposure to the sun as a young man. Nothing about momma Biden wiping oil slicks off the car window before school.
On Thursday, we learned that Biden has Covid. When asked where he might have contracted the virus, a White House spokesman said that this did not seem like an important question to ask. In any case, the fact that one of the most protected men in the world got Covid is a reminder that although we may be done with the virus it is not done with us.