MARKETS • Earnings reports mostly showed growth in profits

sumer spending has held up for now, several measures show that sentiment is eroding quickly, and economists expect demand to slow as people face high prices and rising borrowing costs at the same time.

“The consumer is the main driver of the U.S. economy,” said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics. “So how the consumer goes, so goes the economy.” Bostjancic said that as the Federal Reserve continues to raise rates this year and into next year, “we see more vulnerability for the consumer and risks of a consumer pullback rise.”

Bostjancic’s firm has reduced its expectations for gross domestic product growth this year to 3.1 percent, compared with 5.7 percent reported for 2021. But the outlook for 2023 is where concerns are particularly evident. Oxford Economics is forecasting growth will slow to 2 percent, but others are predicting a recession.

What the Fed does and says will be crucial. The central bank raised interest rates by one-quarter of a percentage point in March, after having held them near zero since the coronavirus pandemic began. With consumer prices already rising at the fastest pace in four decades, that move was largely expected.

But in April, Fed officials began to shift their view, expressed in speeches and other public comments, on how quickly interest rates will have to rise to get inflation under control, and Wall Street’s economic projections shifted too. In the futures market, where traders bet on how high interest rates could go, the predominant view now is that the Fed’s benchmark rate will climb to around 2 percent by July — something that seemed unimaginable even a month ago.

For that to happen, the central bank would have to raise its policy rate by half a percentage point at each of its next three meetings, starting with an increase next week, and the fear is that such aggressive increases will trigger an economic slump, rather than just cooling things down enough to slow inflation but keep the economy growing.

“Every time the Fed has spoken, markets have taken it fairly negatively,” said Saira Malik, chief investment officer at Nuveen, a global investment manager. “Investors are concerned that with these multiple rate hikes, the Fed is going to cause a recession rather than a soft landing.”

Higher interest rates will hit consumer demand. Mortgage rates, for example, have already jumped to above 5 percent from 3.2 percent at the start of the year, eating up new homebuyers’ budgets. Other borrowing costs — everything from consumer loans to corporate debt — will rise as the Fed pushes its benchmark rate higher.

For now, many companies — from United Airlines to Pepsico — are passing on rising costs and reporting that sales continue to rise.

Economists are wondering how long this will continue.

“There’s going to be a natural slowdown in spending, maybe before interest rates increase, as costs increase,” said Jean Boivin, head of the Blackrock Investment Institute. “The central bank will need to monitor that very carefully because, if it happens naturally and then you add interest rate increases, this is how you get to a recession scenario.”

Broadly speaking, earnings reports last week have shown that profit growth continues. About 80 percent of companies in the S&P 500 to report results through Thursday did better than analysts had expected, data from Factset shows.

But other companies have only added to the downdraft. Netflix plunged after it said last month that it expected to lose subscribers — 200,000 in the first three months of the year and an additional 2 million in the current quarter. The stock dropped more than 49 percent for the month.

On Friday, Amazon slid 14.1 percent after the e-commerce giant reported its first quarterly loss since 2015, citing rising fuel and labor costs and warning that sales would slow. Its shares fell 23.8 percent in April.

General Electric on Tuesday warned that the economic fallout from Russia’s invasion of Ukraine would weigh on its results. Its shares fell 10 percent that day and are down about 18.5 percent for the month.

Now executives are also assessing how the COVID-19 lockdowns in China could affect profit margins. Multiple cities are in lockdown in the world’s second largest economy, and although factories remain open, China’s draconian “zero COVID” policy has led to interruptions in shipments and delays in delivery times.

Texas Instruments and the machinery maker Caterpillar cautioned investors last week that the lockdowns in China were affecting the company’s manufacturing operations. On Thursday, Apple also warned that the outbreak in China would hamper demand and production of iphones and other products. The company’s shares fell 3.7 percent Friday and ended April with a loss of 9.7 percent.

The outlook for the economy, the effects of the Ukraine invasion, the lockdowns in China and exactly how fast the Fed will raise interest rates are still unclear. Markets are likely to stay volatile until they are.

“There are definitely a lot of open-ended and unquantified risks looming,” said Victoria Greene, chief investment officer at G Squared Private Wealth, an advisory firm. “The U.S. economy lives and dies for the consumer, and as soon as this consumer starts to slow down, I think that will hit the economy hard.”

EDUARDO MUNOZ AVAREZ AP Amazon slid 14.1 percent after the e-commerce giant reported its first quarterly loss since 2015, citing rising fuel and labor costs and warning that sales would slow. Its shares fell 23.8 percent in April.