The US economy is showing signs of a potential slowdown, raising concerns about a possible recession.
On the causes and consequences of the recent bout of market volatility, including why the Federal Reserve should avoid an emergency rate cut.
https://t.co/jpHiwNWAmO#economy #markets @opinion #econtwitter #FederalReserve— Mohamed A. El-Erian (@elerianm) August 6, 2024
The recent job data, which was much worse than expected, has triggered the “Sahm rule,” indicating that the country may be at the beginning of a recession. US employers created only 114,000 jobs in July, far below the expected 175,000 new roles.
The unemployment rate also rose to 4.3%, a nearly three-year high. The three-month average unemployment rate was 4.1%, compared to the lowest level over the last year at 3.5%.
The link to the conversation with Geoff Bennett on the PBS NewsHour:https://t.co/HDvKIvw6Ff#economy #markets @newshour #pbs @geoffrbenett #econtwitter #federalreserve #growth #inflation #recession #inequality
— Mohamed A. El-Erian (@elerianm) August 3, 2024
The Federal Reserve’s decision to hold borrowing costs last week has led to speculation that they may have waited too long to act.
A cut in interest rates generally makes it cheaper to borrow money, which should boost the economy.
[@opinion] There are two different camps when it comes to interpreting Friday’s jobs report and the state of the labor market, but whichever one you’re in, you should support the Fed cutting rates by 100bps+ by the end of the year: https://t.co/dFb2EkRzpd
— Conor Sen (@conorsen) August 5, 2024
Job concerns amid economic slowdown
If the job figures suggest that the economy is already tipping downwards, there are fears that the Fed may be too late.
“However, for some, talk of an economic slowdown – or even a (whisper it) recession – is a little premature.” https://t.co/GIiuirZbhJ
— Dori Toribio (@DoriToribio) August 5, 2024
The technology sector has also been facing troubles, with chip-making giant Intel announcing 15,000 job cuts and market rumors suggesting that rival Nvidia may have to delay the release of its new AI chip. This resulted in a steep decline in the Nasdaq index, which plunged 10% on Friday, heightening market fears and concerns that the Fed might need to step in before its next meeting in September to cut interest rates. However, opinions among experts remain divided.
Claudia Sahm, the economist behind the “Sahm rule,” noted that while the momentum is heading towards a recession, “a recession is not inevitable and there is substantial scope to reduce interest rates.”
Neil Shearing, group chief economist at Capital Economics, stated, “While the report was bad, it wasn’t catastrophic.” He attributed some of the weakness in July’s payroll figures to external factors like Hurricane Beryl and added that the labor market appears to be cooling, but not collapsing. Simon French, chief economist at Panmure Liberum, suggested taking a moment to reflect on the broader economic picture, stating that we haven’t suddenly re-appraised the health of the world’s biggest economy, and nor should we. He added that it is another data point at a time “when liquidity is thin, and you’ve got a lot of things to worry about.”
The US economy is navigating through turbulent economic waters, with no clear sign of an imminent recession.
However, caution and vigilance remain necessary, and the Federal Reserve’s actions in the coming months will be crucial in determining the direction of the economy.
