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Public companies' earnings reports give us a glimpse of the state of the economy

RACHEL MARTIN, HOST:

Prices are rising at their fastest pace in more than four decades. Just in June, they surged up 9.1% from the year before.

STEVE INSKEEP, HOST:

So how long could that trend continue? It can be worth listening to the companies that spend a lot of money trying to answer questions like that.

MARTIN: NPR's David Gura joins us now to talk about all this. Hey, David.

DAVID GURA, BYLINE: Hey, Rachel.

MARTIN: Companies have started reporting earnings for the second quarter, the last three months. What are we learning from them?

GURA: When it comes to the economy, we spend a lot of time looking at information that is backwards-looking - jobs data, consumer prices. You know, commentary from CEOs and forecasts of future earnings can shape our understanding of what the economy may look like in the future. So while earnings reports and calls executives do with analysts may seem dry, not relevant to most people, they are worth paying attention to because companies have access to tons of data about themselves, their customers, talking about customer spending patterns, how they're feeling.

You know, companies have data about their inventories, their supply chains, how higher interest rates will affect them in the coming months. And all this informs forecasts and shapes the guidance they give on how they think their company and the economy will do. And in this moment, amid all this economic uncertainty, that is what's most important to investors like Liz Ann Sonders, who's the chief investment strategist at Charles Schwab.

LIZ ANN SONDERS: It's very much the, you know, Wayne Gretzky - you got to look to where the puck is going, not where the puck is right now.

MARTIN: Oh, hockey.

GURA: A good one there from The Great One, Rachel. And picking up on that metaphor, the Fed, investors, executives, the rest of us - everyone's trying to figure out where that puck is going, what inflation is doing and where the economy is headed.

MARTIN: All right. So can we get specific, though? I mean, I have to admit, it's a little harrowing to think about all the data that these companies do have on us. But what can we learn about inflation from companies' earnings?

GURA: Well, they've told us in past quarters how they've navigated really persistent problems with supply chains that have led to higher costs. And for a while, companies were able to pass that on to their customers. People were just simply willing to pay more, the reason being coming out of the darkest days of the pandemic, demand was so strong.

MARTIN: Right.

GURA: Steven Wieting says that's changing. He's the chief investment strategist at Citi Global Wealth.

STEVEN WIETING: We're getting into an environment now where consumers, of course - the big story - are facing inflation without income supports from the government.

GURA: Of course, those stimulus checks are long gone. Prices have continued to climb. And, you know, from these earnings reports, we should get a better understanding of whether people are still willing or able to pay a premium for cars and travel and hotels or if demand for all that has diminished. We'll see how companies are dealing with the Federal Reserve's response to high inflation. The era of easy money with very low interest rates is over. It's more expensive to borrow, to grow. And many companies, Rachel, are retrenching as a result.

MARTIN: So these earnings seasons - we talk about them in seasons - starts with the big banks, right? So what is Wall Street listening for specifically from financial firms?

GURA: Morgan Stanley reports today, along with JPMorgan Chase. Then we turn to Wells Fargo, Bank of America, Goldman Sachs in the coming days. And these big banks are integral, not just to the U.S. economy, but the global economy. And they lend money to all kinds of companies, which gives them a really unique perspective on how the economy is functioning broadly - who's getting loans, who isn't, how tight credit is right now.

The last thing I'll say is when the CEOs of these big banks speak, people listen. Jamie Dimon of JPMorgan caused a small tempest a few weeks back when he said there's an economic hurricane on the horizon. So during earnings season, there could be more pronouncements like that from these very powerful people, Rachel.

MARTIN: NPR's David Gura. Thank you so much, David.

GURA: Thank you. Transcript provided by NPR, Copyright NPR.

Based in New York, David Gura is a correspondent on NPR's business desk. His stories are broadcast on NPR's newsmagazines, All Things Considered, Morning Edition and Weekend Edition, and he regularly guest hosts 1A, a co-production of NPR and WAMU.