The US economy slowed less than expected | Diageo’s sales jumped |

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Today's big stories

  1. The US economy slowed less than expected last quarter
  2. This stock could be the best AI investment play going – Read Now
  3. The world’s biggest spirits maker Diageo celebrated tequila-shot-worthy sales

Easy Does It

Easy Does It

What’s Going On Here?

Fresh data out on Thursday showed that US economic growth slowed less than expected last quarter.

What Does This Mean?

Rate hikes are one of the main weapons the Federal Reserve (the Fed) has in its war on inflation, and it hasn’t been particularly shy about firing them off. But while the economy’s sustained some damage, it still managed to stay on its feet last quarter. After all, a key measure of consumer spending – which makes up the lion’s share of the economy – increased by just over 2%. That’s less than economists expected, sure, but growth is growth. Government spending took its biggest leap in almost two years too, and companies upped their inventories – all of which helped plug the gap left by plunging residential property investments and dwindling exports. On the whole, the news was good: the economy grew at an annualized pace of 2.9%, a slowdown from the previous quarter, but better than the 2.6% economists expected.

Why Should I Care?

The bigger picture: Time will tell.
There’s no denying that the economy showed pluck last quarter, but some pundits still think rate hikes haven’t had their full impact yet, and reckon they’ll knock the economy into a mild recession as the year wears on. That chimes with a recent survey by Bloomberg: it revealed that economists think the economy will shrink by 0.6% and 0.3% in the second and third quarters of this year – marking a technical recession.

Zooming out: Deny all knowledge.
The Fed isn’t done yet: the central bank’s widely expected to hike rates by 0.25 percentage points next week, and eventually bring rates to 5% and hold them there for a while. But while economists are already sounding the recession alarm, the central bank insists a good old “soft landing” is still a possibility. At any rate, there’s no guarantee it’ll fess up if things do take a turn: it kept mum when a technical recession set in last year, after all.

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Spirited Away

Spirited Away

What’s Going On Here?

Diageo, the world’s biggest spirits maker, raised a toast on Thursday to celebrate its sparkling sales.

What Does This Mean?

Plenty of folk spent the pandemic mixing their own cocktails at home, but that doesn’t mean they went teetotal when restrictions lifted. Quite the opposite: the current cost-of-living crisis seems to be another excuse for a regular liquid pick-me-up. And while the economic slowdown has some trading down for cheaper foods, drinkers actually seem to be quaffing swankier stuff: after all, it was Diageo’s most expensive booze that customers really thirsted for, and sales of the firm’s priciest offerings grew by double-digit percentages in each region. In fact, premium brands made up 65% of the company’s organic sales growth. All in all then, those sophisticated sippers helped the maker of Johnnie Walker whisky and Captain Morgan rum top up net sales by a hardy 9% in the second half of 2022, outstripping analysts’ expectations.

Why Should I Care?

For markets: Investors stayed sober.
Investors didn’t feel like joining Diageo’s celebrations, and not just because of Dry January. For one, sales slowed down in North America – a worrying sign given that the region brings in about half the firm’s overall profit. And for another, most of the firm’s growth was simply down to price rises, meaning the amount of drink Diageo sold was actually pretty underwhelming. That meant stone-cold-sober investors looked past share buybacks and a dividend bump, and sent shares down 6%.

Zooming out: On the rocks.
British tonic maker Fevertree was also shaken in the US last year, adding insult to injury after its sales dropped in the UK, its biggest market. The maker of high-end spirit mixers warned that the cost of glass bottles is bubbling over, and that could keep its profit underwhelmingly flat this year. Unsurprisingly, that news wasn’t the tonic investors needed: shares dropped a whole 15%.

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