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    Euro zone economy grows 0.7% in the second quarter despite gas crisis and inflation surge

    Officials in Europe have become increasingly concerned about the possibility of a shutdown of gas supplies.
    Gazprom, Russia’s majority state-owned energy giant, reduced gas supplies to Europe via the Nord Stream 1 pipeline to 20% of full capacity this week.
    A growing number of economists are expecting the euro zone to slide into a recession next year.

    Growth in the euro zone economy accelerated in the second quarter of the year, but the region’s prospects get hit as Russia continues to reduce gas supplies.
    The 19-member bloc registered a gross domestic product rate of 0.7% in the second quarter, according to Eurostat, Europe’s statistics office, beating expectations of 0.2% growth. It comes after a GDP rate of 0.5% in the first quarter.

    The numbers contrast sharply with the negative annualized readings out of the United States for both the first and second quarter, as the euro zone continues to benefit from the reopening of its economy after the pandemic.
    However, a growing number of economists are expecting the euro zone to slide into a recession next year, with Nomura, for example, forecasting an annual contraction of 1.2% and Berenberg pointing to a 1% slowdown.
    Even the European Commission, the executive arm of the EU, has admitted that a recession could be on the cards — and as early as this year if Russia completely cuts off the region’s gas supplies.
    Officials in Europe have become increasingly concerned about the possibility of a shutdown of gas supplies, with European Commission President Ursula von der Leyen saying Russia is “blackmailing” the region. Russia has repeatedly denied it’s weaponizing its fossil fuel supplies.
    However, Gazprom, Russia’s majority state-owned energy giant, reduced gas supplies to Europe via the Nord Stream 1 pipeline to 20% of full capacity this week. Overall, 12 EU countries are already suffering from partial disruptions in gas supplies from Russia, and a handful of others have been completely shut off.

    European Economics Commissioner Paolo Gentiloni said the latest growth figures were “good news.”
    “Uncertainty remains high for the coming quarters: [we] need to maintain unity and be ready to respond to an evolving situation as necessary,” he said.
    The GDP readings come at a time of record inflation in the euro zone. The European Central Bank hiked interest rates for the first time in 11 years earlier this month — and more aggressively than expected — in an effort to bring down consumer prices.
    However, the region’s soaring inflation is being driven by the energy crisis, meaning further cuts of Russian gas supplies could push up prices even more.
    “Given the challenging geopolitical and macroeconomic factors that have been at play over the past few months, it’s positive to see the eurozone experience growth, and at a higher rate than last quarter,” Rachel Barton, Europe strategy lead for Accenture, said in an email.
    “However, it’s clear that persistent supply chain disruption, rising energy prices and record-breaking levels of inflation will have a longer-term impact.”
    Meanwhile, Andrew Kenningham, chief Europe economist at Capital Economics, said Friday’s GDP figure would mark “by far the best quarterly growth rate for a while.”
    “Indeed, news that inflation was once again even higher than anticipated only underlines that the economy is heading for a very difficult period. We expect a recession to begin later this year,” he added.
    Eurostat also published revised inflation figures Friday, putting annual inflation at 8.9% in July, up from 8.6% in June.

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    F.T.C. Chair Lina Khan Upends Antitrust Standards by Suing Meta

    Lina Khan may set off a shift in how Washington regulates competition by filing cases in tech areas before they mature. She faces an uphill climb.WASHINGTON — Early in her tenure as chair of the Federal Trade Commission, Lina Khan declared that she would rein in the power of the largest technology companies in a dramatically new way.“We’re trying to be forward looking, anticipating problems and taking fast action,’’ Ms. Khan said in an interview last month. She promised to focus on “next-generation technologies,” and not just on areas where tech behemoths were already well established.This week, Ms. Khan took her first step toward stopping the tech monopolies of the future when she sued to block a small acquisition by Meta, the company formerly known as Facebook, of the virtual-reality fitness start-up Within. The deal was significant for Meta’s development of the so-called metaverse, which is a nascent technology and far from mainstream.In doing so, Ms. Khan upended decades of antitrust standards, potentially setting off a wholesale shift in the way Washington enforces competition across corporate America. At the heart of the F.T.C.’s lawsuit is the idea that regulators can apply antitrust law without waiting for a market to mature to the point where it is clear which companies hold the most power. The F.T.C. said such early action was justified because Meta’s deal would probably eliminate competition in the young virtual-reality market.Since the late 1970s, most federal challenges to mergers have been in large, well-established markets and aim to prevent already clear monopolies. Regulators have mostly rubber-stamped the purchases of start-ups by tech giants, such as Google’s 2006 deal to buy YouTube and Facebook’s 2012 acquisition of Instagram, because those markets were still emerging.As a result, Ms. Khan faces an uphill climb. Regulators have been reluctant to try to stop corporate mergers by relying on the theory that competition and consumers will be harmed in the future. The federal government lost at least two cases that used this strategy in the past decade, including an attempt to block a $1.9 billion merger in 2015 among X-ray sterilization providers that the F.T.C. had predicted would harm future competition in regional markets.The F.T.C.’s lawsuit against Meta in the budding virtual-reality market is a “deliberately experimental case that seeks to extend the boundaries of merger enforcement,” said William Kovacic, a former chair of the agency. “Such cases are certainly harder to win.”The F.T.C.’s action immediately caused a ruckus within antitrust circles and across the tech industry. Silicon Valley tech executives said that moving to block a deal in an embryonic area of technology might stifle innovation and spook technologists from taking bold leaps in new areas.“Regulators predicting future markets is a very, very dangerous precedent and position,” said Aaron Levie, the chief executive of the cloud storage company Box. He warned that venture capitalists and entrepreneurs would become wary of going into new markets if regulators cut off the ability of companies like Meta to buy start-ups.Adam Kovacevich, the president of the trade group Chamber of Progress, which represents Meta, Amazon and Alphabet, also said the lawsuit would have a chilling effect on innovation.Read More on Facebook and MetaA New Name: In 2021, Mark Zuckerberg announced that Facebook would change its name to Meta, as part of a wider strategy shift toward the so-called metaverse that aims at introducing people to shared virtual worlds.Morphing Into Meta: Mr. Zuckerberg is setting a relentless pace as he leads the company into the next phase. But the pivot  is causing internal disruption and uncertainty.Zuckerberg’s No. 2: In June, Sheryl Sandberg, the company’s chief financing officer announced she would step down from Meta, depriving Mr. Zuckerberg of his top deputy.Tough Times Ahead: After years of financial strength, the company is now grappling with upheaval in the global economy, a blow to its advertising business and a Federal Trade Commission lawsuit.“This is such an extreme and unfounded reaction to a small deal that many tech industry leaders are already worrying about what an F.T.C. win would mean for start-ups,” he said.For Ms. Khan, winning the lawsuit may be less of a priority than showing it’s possible to file against a tech deal while it is still early. She has said regulators were too cautious in the past about intervening in mergers for fear of harming innovation, allowing a wave of deals between tech giants and start-ups that eventually cemented their dominance.“What we can see is that inaction after inaction after inaction can have severe costs,” she said in an interview with The New York Times and CNBC in January. “And that’s what we’re really trying to reverse.”Ms. Khan declined requests for an interview for this article, and the F.T.C. declined to comment on Thursday.Mark Zuckerberg, Meta’s chief executive, testifying on Capitol Hill in 2019. He has bet the company on the metaverse, a technology frontier.Pete Marovich for The New York TimesMeta said the F.T.C. was applying antitrust law incorrectly. The lawsuit focuses on how the merger with Within would remove competition, but Meta said the agency was ignoring the large number of companies that also had health and fitness apps.“The F.T.C. has no answer to the most basic question — how could Meta’s acquisition of a single fitness app in a dynamic space with many existing and future players possibly harm competition?” Nikhil Shanbhag, Meta’s vice president and associate general counsel, wrote in a blog post.The company added that it hadn’t decided on whether to challenge the lawsuit, which was filed on Wednesday in U.S. District Court for the Northern District of California.The F.T.C. accused Meta of building a virtual reality “empire,” beginning in 2014 with its purchase of Oculus, the maker of the Quest virtual-reality headset. Since then, Meta has acquired around 10 virtual-reality app makers, such as the maker of a Viking combat game, Asgard’s Wrath, and several first-person shooter and sports games.By buying Within and its Supernatural virtual-reality fitness app, the F.T.C. said, Meta wouldn’t create its own app to compete and would scare potential rivals from trying to create alternative apps. That would hobble competition and consumers, the agency said.“This acquisition poses a reasonable probability of eliminating both present and future competition,” according to the lawsuit. “And Meta would be one step closer to its ultimate goal of owning the entire ‘Metaverse.’”Rebecca Haw Allensworth, a professor of antitrust law at Vanderbilt University, said the F.T.C.’s arguments would face tough scrutiny because Meta and Within did not compete with each other and because the virtual-reality market was fledgling.“The way that merger analysis has stood for at least 40 years is about what kind of head-to-head competition does this merger take out of the picture,” she said.The onus will now be on the agency to convince a judge that its predictions about the metaverse and Meta’s purchase would harm competition.“The burden is on the F.T.C. to show, among other things, reasonable probability that Meta would have entered the V.R.-dedicated fitness apps market, absent its acquisition of Within,” said Diana Moss, president of the American Antitrust Institute.If the court dismisses the case, Ms. Khan may have created a precedent that would make it harder to pursue nascent competition cases, antitrust experts cautioned. That could then embolden tech giants to acquire their way into new lines of businesses.“This is a precedential system which goes both ways — if you win or lose — and sends a signal to the market,” Ms. Allensworth said.The F.T.C. is reviewing other tech deals, including Microsoft’s $70 billion acquisition of the gaming company Activision and Amazon’s $3.9 billion merger with One Medical, a national chain of primary care clinics. In addition, the agency has been investigating Amazon on claims of monopoly abuses in its marketplace of third-party sellers.Ms. Khan appears to be prepared for long legal battles with the tech giants even if the cases do not end up going the F.T.C.’s way.In her earlier interview with The Times and CNBC, she said, “Even if it’s not a slam-dunk case, even if there is a risk you might lose, there can be enormous benefits from taking that risk.” More

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    The economy may look like it's in recession, but we still don't know for sure

    The second-quarter GDP decline of 0.9% was the second straight negative quarter and brought the economy in line with a common definition of recession.
    But we won’t know for sure if it officially becomes a recession until the National Bureau of Economic Research says so.
    Even if the NBER does not declare a recession in the first half, the economy is far from out of the woods.

    In an aerial view, shipping containers sit idle at the Port of Oakland on July 21, 2022 in Oakland, California. Truckers protesting California labor law Assembly Bill 5 (AB5) have shut down operations at the Port of Oakland after blocking entrances to container terminals at the port for the past four days. An estimated 70,000 independent truckers in California are being affected by the state AB5 bill, a gig economy law passed in 2019 that made it difficult for companies to classify workers as independent contractors instead of employees. The port shut down is contributing to ongoing supply-chain issues. 
    Justin Sullivan | Getty Images

    The second-quarter GDP report brought the economy in line with a common definition of recession. But we won’t know for sure if it officially is declared one at least for months.
    That’s because the official arbiter in such matters is the Business Cycle Dating Committee of the National Bureau of Economic Research, and it doesn’t use the same definition as the one commonly accepted of at least two consecutive quarters of negative growth.

    Rather, the NBER defines recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”
    That could mean consecutive quarters of decline. In fact, every time since 1948 that GDP has fallen for at least two straight quarters, the NBER ultimately has declared a recession. Second-quarter GDP dropped 0.9%, while the first quarter declined by 1.6%, according to the Bureau of Economic Analysis.
    But the NBER doesn’t even use GDP as a major factor in its thinking, and it declared a recession in 2001 without there being consecutive declines.

    And get ready for a surprise again this time: There are virtually no major Wall Street economists who expect the NBER to say the U.S. economy was in recession during the first half of 2022.
    “We weren’t in a recession for the first half of the year, but odds are rising we will be by the end of the year,” said Mark Zandi, chief economist at Moody’s Analytics.

    Like his cohorts on the Street, Zandi said the bustling jobs market — which even with 457,000 jobs a month added this year is still not back to pre-Covid levels — is the primary reason the NBER won’t declare a recession. But there are others.
    “We created too many jobs. We had record-low layoffs, we had record-high unfilled positions. Consumer spending, business investment, were all positive,” he said. “I just don’t see them declaring a recession.”
    Federal Reserve Chairman Jerome Powell said Wednesday he doesn’t think the economy was in a true recession, and he even questioned the accuracy of the GDP data.
    “What we have right now doesn’t seem like” a recession, Powell said. “And the real reason is that the labor market is just sending such a signal of economic strength that it makes you really question the GDP data.”

    The NBER criteria

    While the NBER is hardly a household name, the government and business news outlets take the private research organization’s proclamations as gospel when determining expansions and contractions.
    The organization is generally thought to use six factors:

    Real personal income minus transfer payments
    Nonfarm payrolls
    Employment as gauged by the Bureau of Labor Statistics’ household survey
    Real personal consumption expenditures
    Sales adjusted for price fluctuations
    Industrial production

    “If this definition feels involved, it’s because it is,” Tim Quinlan, senior economist at Wells Fargo, said in a client note earlier this week. “Defining a recession isn’t easy and extends beyond simply a downturn’s duration to how deep and widespread it is throughout the economy.”
    Following Thursday’s GDP release, Quinlan said conditions are fast approaching even the NBER’s criteria.
    “Insisting upon the precise definition of recession will be an even more fraught task in light of the unequivocal deterioration in economic activity reflected in today’s 0.9% contraction in Q2 real GDP,” he wrote. “Yet real consumer spending continued to forge ahead and the job market still has legs. It is too early call the end of this expansion, but the hour is fast approaching.”

    Political ramifications

    The question of recession has become a political one.
    Earlier this month, the White House raised some hackles when it released a blog post insisting the economy is not in a recession. Critics charged the administration was trying to change a long-held definition and the media was being compliant by noting the NBER factor.
    The post noted that “holistic data” such as “the labor market, consumer and business spending, industrial production, and incomes” figures into the real definition of recession.
    “Based on these data, it is unlikely that the decline in GDP in the first quarter of this year—even if followed by another GDP decline in the second quarter—indicates a recession,” the post said.
    “Policymakers will no doubt be tying themselves in knots trying to explain why the U.S. economy is not in recession. However, they make a strong point,” said Seema Shah, chief global strategist at Principal Global Investors. “While two consecutive quarters of negative growth is technically a recession, other timelier economic data are not consistent with recession.”
    Even if the NBER does not declare a recession in the first half, the economy is far from out of the woods. Higher interest rates, persistent inflation, and a historically sour mood on behalf of consumers and businesses pose major dangers ahead.
    Many of those same economists who doubt a first-half recession say one is highly possible over the next year or so.
    “People have very negative sentiment. It’s about as dark as I’ve ever seen it,” said Zandi, the Moody’s economist. “I’ve never seen anything like it in terms of just the anticipation of this bad economy that’s dead ahead. At the end of the day, a recession is a loss of faith. Consumers lose faith they’re going to have jobs, businesses lose faith they’re going to be able to sell what they produce. Risks are very high we lose faith and go into recession.”

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    Yellen says the economy is not in a recession despite GDP slump

    Treasury Secretary Janet Yellen said Thursday the U.S. economy is in a state of transition, not recession.
    “When you look at the economy, job creation is continuing, household finances remain strong, consumers are spending and businesses are growing,” she said during a news conference.

    Treasury Secretary Janet Yellen said Thursday the U.S. economy is in a state of transition, not recession, despite two consecutive quarters of negative growth.
    Recession, Yellen insisted, is a “broad-based weakening of our economy” that includes substantial layoffs, business closures, strains in household finances and a slowdown in private sector activity.

    “That is not what we are seeing right now,” she said during an afternoon news conference at the Treasury. “When you look at the economy, job creation is continuing, household finances remain strong, consumers are spending and businesses are growing.”
    Those comments, though, came on the same day that the Commerce Department’s Bureau of Economic Analysis reported that gross domestic product, the broadest measure of economic activity, fell 0.9% in the second quarter.
    Coming on the heels of a 1.6% contraction in the first quarter, the two straight declines meet a commonly used definition of recession. The National Bureau of Economic Research, however, is the official arbiter of recessions, and likely won’t rule for months.
    Yellen started her remarks with a list of the administration’s economic accomplishments, including nonfarm payroll growth of more than 9 million.
    But inflation has proven the bigger obstacle, rising to 9.1% in June while economic growth has failed to keep up. Consumer and business confidence levels have plunged, with recent surveys showing a solid majority of Americans believe the country is in recession.

    Yellen acknowledged the burden that higher prices carry and said the administration is “laser-focused” on addressing the situation.
    “We’ve entered a new phase in our recovery focused on achieving steady, stable growth without sacrificing the gains of the last 18 months,” she said. “We know there are challenges ahead of us. Growth is slowing globally. Inflation remains unacceptably high, and it’s this administration’s top priority to bring it down.”
    President Joe Biden and Yellen both touted the possibilities of a new bill that Democratic lawmakers apparently have agreed on to fight inflation. The legislation is aimed at raising tax revenue, lowering drug costs and investing in renewable energy.
    Yellen noted that while the Federal Reserve, which she chaired from 2014-18, has “the primary role in bringing down inflation, the president and I are committed to taking action do drive down costs and protect Americans from the global pressures we face.”
    The Fed has raised rates four times this year, for a total of 2.25 percentage points, and likely will add more increases later in the year.
    Yellen attributed rising inflation to the war in Ukraine, supply chain problems and the Covid pandemic. She did not discuss the impact that monetary and fiscal stimulus had on price pressures.

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    There is deflation in some items as Wingstop notes dropping chicken wing prices

    Wingstop shares are rallying as lower chicken wing prices helped the company to top earnings expectations.
    At a time when many consumers may have forgotten what deflation is, Wingstop’s chicken wing prices plunged 19% year-over-year in the latest quarter.
    Lower wing prices come as other poultry prices are rising
    Pilgrims Pride said the lower wing prices can be traced back to restaurants swapping in boneless wings.

    Spicy chicken wings.
    Gado | Archive Photos | Getty Images

    Three months ago, Wingstop put a shocker in its earnings release: It was seeing DEFLATION in bone-in chicken wing costs.
    The chicken chain reiterated the trend with its latest results Thursday morning and its stock rallied 20% on the news.

    “We are benefiting from meaningful deflation in bone-in wings,” CEO Michael Skipworth said.
    At a time when many consumers may have forgotten what deflation is, Wingstop explained that bone-in chicken wing prices have plunged 19% year-over-year in the latest quarter.
    Chicken wings were a popular menu item during the early days of the Covid-19 pandemic. Stuck at home, consumers ordered them in dozens as the tasty treat transported well for a contactless drop off at the door. The higher demand ushered in what would become a pattern as the pandemic wore on: shortages and higher prices
    Fast-forward to Wingstop’s latest results: The lower wing costs helped Wingstop to handily beat earnings estimates, despite a revenue miss.
    Net income rose to $13.3 million, or 44 cents per share, from $11.3 million, or 38 cents per share, a year ago. Excluding items, the company earned 45 cents per share, solidly outpacing the 36 cents per share, analysts surveyed by Refinitiv were expecting.

    Revenue climbed to $83.8 million from $74 million last year, but was shy of the $86.1 million analysts predicted.
    Wingstop wasn’t alone. The fast-casual chain Noodles & Co. reported results Wednesday afternoon. Guess what it said?
    “We have recently seen key commodity prices such as chicken decline substantially from record highs,” CEO Dave Boennighausen said.
    But here is what is a little odd. Earlier this week, the U.S. Department of Agriculture raised its wholesale poultry price estimate to a gain of 26% to 29% this year from a prior forecast of up 20% to 23%.
    The increased forecast suggests chicken prices may be poised to continue to rise in the back half of the year. However, the country’s biggest poultry producer, Pilgrim’s Pride, shed some light on this when it reported second-quarter earnings after the close on Wednesday.
    In its conference call presentation, the company provided details about inventories and prices. The situation drastically varies depending on chicken parts.
    Here’s a sampling: Chicken breast inventories are down 7% year over year while dark meat inventories are 15% below the five-year June average. However, wing inventories are substantially higher – they grew in the latest quarter and are now 31% above the five-year June average.
    All that is impacting pricing. According to Pilgrim’s Pride, prices of chicken breasts, tenders and leg quarters are trending higher than other recent years – but wing prices have slumped.
    The reason may have its roots in a cost-cutting measure many quick-service restaurants took many months ago. As wing prices soared, the companies took wings off the menu and swapped in boneless wings, which is actually made from chicken breast meat, Pilgrim’s Pride said on its call. Wingstop also launched a virtual restaurant called Thighstop.
    “So with that, we saw a very fast decline in the price of wings to the prices that we have today,” Pilgrim’s Pride explained. The company added that some seasonality is at play in wing prices as well since the football and basketball seasons are over, and those sporting events tend to boost demand for chicken wings.
    Pilgrim’s Pride said it expects wing prices to start rising again as those sports gear up for their next seasons.
    But at the moment, restaurants have a bit of pricing relief, and investor will see how it play out when KFC parent Yum Brands reports results next Wednesday and Popeyes parent Restaurant Brands release its results on Thursday.
    As for Noodles & Co., it also made a strategic decision that helped its results. Boennighausen told CNBC it now uses a more efficient cut of chicken breast that produces less waste and boosts profit margins.
    —CNBC’s Amelia Lucas contributed to this report.

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