What is the true state of health of the American economy
The latest US employment data suggests a slowdown in the overall economy. Analysis by Jeffrey Cleveland, Chief Economist of Payden & Rygel
The latest US employment data, released last Friday, shows a slowdown in new job creation. Considering that it is one of the best real-time indicators of the performance of the US economy, it can easily be interpreted as a sign of a slowdown in the US economy in general.
WHAT THE DATA SAY
Specifically, the quarterly average of new pay slips went from around 250,000 at the beginning of the year to 114,000 in August. In any case, to calculate the unemployment rate, the report published by the United States Department of Labor uses another survey, although less extensive and reliable, from which it emerges that, after three consecutive months of increases, in August the rate unemployment has finally fallen from 4.3% to 4.2%, a level which, although relatively low from a historical point of view, still remains far from the lows of the cycle (3.4%).
WHAT IS THE AMERICAN ECONOMY AT RISK?
It is true, therefore, that job growth has slowed, but the figure is still well above zero, not indicative of a recession and strong enough to maintain downward pressure on the unemployment rate.
However, if inflation continues to moderate, the risk for the Fed is that of remaining restrictive for too long, needlessly plunging the US economy into a recessionary phase. Friday's data must therefore be put into context and, presumably, most policymakers will be eager to proceed with the long-awaited first cut in interest rates at next week's meeting. The macro data, at the moment, do not seem to justify a 50 basis point cut, although the bond market continues to attribute a very high probability to this hypothesis.
An argument in favor could be given by the fact that, in the presence of a restrictive monetary policy (with a Fed Funds rate of 5.33%) and the fear of a further slowdown in the labor market, policymakers could decide to to drop all the cards, in order to return to a neutral orientation of monetary policy.
HOW THE STOCK MARKET IS GOING
Meanwhile, in the short term, the stock market is comforted by softer inflation readings, but disappointed by weak growth, as evidenced by the drop recorded on Friday, following the August employment data.
Investors' eyes are focused on the publication of the Consumer Price Index for August, scheduled for tomorrow, which should clarify the minds of policymakers. In particular, if August core CPI increased by 0.3% versus the consensus of 0.2%, market expectations for a 50bp cut should be significantly reduced.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/stati-uniti-rallentamento-occupazione-economia/ on Sun, 15 Sep 2024 03:23:59 +0000.