​​Earnings reports are kind of like report cards for corporate America, and they can tell us a lot about what the economy is doing and expected to do.  Alphabet reported disappointing earnings Tuesday: revenue growth slowed down — way down — from 41% last year to just 6% this year.  On the other hand, payroll processor ADP reported higher earnings on Wednesday that surprised investors. 

So far this earnings season, most S&P 500 companies that have reported have beaten revenue expectations. 

“I think the mood for the reports has generally been positive,” said Alex Zukin, a managing director at Wolfe Research. “It’s the outlook that is giving people a little bit of hesitation.”

The outlook is the part of the earnings report where companies tell you what they think is going to happen down the road.  Microsoft, for example, suggested decelerating demand for some of its products, Zukin said.  Some other red flags Zukin saw are companies that are suddenly focusing on cost cutting.

“How do we make sure that every dollar that we’re spending is being spent in the right way?” he said. “Those two things are generally an ominous sign for the demand environment in the future.”

And there’s a telling difference between the companies that have negative outlooks or bad earnings, and those that don’t. 

“It depends who you are selling to,” said Michael Walker, an analyst at asset management firm AllianceBernstein. “If you are selling to consumers or if you are dealing with consumers and individuals then you are doing just fine so far and in fact the outlooks are pretty good for next year.”

The job market’s in good shape, so no surprise that Payroll processor ADP beat earnings. 

“On the flip side, if you’re selling to companies then you’re starting to see a downturn,” Walker said.

Google, Microsoft, and Texas Instruments each had forecasts that disappointed, and all three companies sell to businesses.  It’s businesses that are starting to feel the teeth of rising interest rates — rising rates make borrowing harder and they lower stock prices.  

“It does come in waves,” said Joel Prakken, chief US economist with S&P Global Market Intelligence. “We’ve seen, for example, the housing sector is the first sector to respond by contracting.”  

Next he says, business spending on equipment will fall. 

“Somewhere in the mix there you’re gonna see a dropoff in spending for consumer durable goods,” he said.

And all of that will start showing up in earnings reports as time goes on.