By Brian Swint
The big question hanging over markets this week is whether economic growth is going to keep powering ahead this year.
The latest indication that a slowdown may be in the pipeline comes from WPP, the world's biggest advertising company. It said that revenue is likely to fall this year and that it already dropped in North America in the fourth quarter. The London-listed firm's American depositary receipts dropped 15% in premarket trading.
Advertising is often seen as a bellwether for consumer spending. It is often the first things companies cut when bracing for tougher times and conversely the thinking is if companies start increasing spending on ads, they must be expecting sales to rise.
Unfortunately this week there have been a string of consumer-focused companies that have issued guidance that investors found disappointing. Home Depot's outlook was worse than expected. Domino's Pizza said that U.S. consumers are hesitant. Donut maker Krispy Kreme shares are down 36% over the past five days after poor results on Tuesday. And all that coincides with the biggest drop in consumer confidence since August 2021 in February. Consumer spending makes up two-thirds of the economy, so shoppers' willingness to buy things is a crucial component for the economic outlook.
The good news is that the signs of a consumer downturn are still only from surveys, which can sometimes be poor predictors of actual spending, or based on anecdotal evidence from companies. The Atlanta Federal Reserve's GDPNow estimate for first-quarter gross-domestic product stands at 2.3%, which is decent. The unemployment rate is still historically very low.
Nevertheless, the string of warnings signals from consumer-focused firms could be the canary in the coal mine.
Write to Brian Swint at brian.swint@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
February 27, 2025 08:09 ET (13:09 GMT)
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