In recent days, global stock markets have been experiencing significant declines. Trading screens across the US, Asia, and parts of Europe are filled with flashing red numbers moving downward. This sudden shift is driven by growing concerns that the US economy, the largest in the world, is slowing down. The primary source of this anxiety is the much worse than expected US jobs data for July, released last Friday.
Despite some experts considering talk of an economic slowdown or a potential recession to be premature, the official figures present a mixed picture. On the downside, US employers created only 114,000 jobs in July, far below the anticipated 175,000. Additionally, the unemployment rate rose to 4.3%, a nearly three-year high, triggering the “Sahm rule.” This rule, named after economist Claudia Sahm, indicates the start of a recession if the three-month average unemployment rate is half a percentage point higher than its lowest level in the past year. With July’s unemployment rate at 4.1% compared to the previous year’s low of 3.5%, the criteria are met.
Further fueling concerns is the US Federal Reserve’s recent decision to maintain interest rates, contrary to other central banks in developed economies that have cut rates. Although Fed Chair Jerome Powell hinted at a possible rate cut in September, some speculate that the Fed might have delayed too long. Lower interest rates generally boost the economy by making borrowing cheaper, but if the economy is already declining, a delayed cut may be ineffective.
Technology companies have also contributed to market instability. Intel’s announcement of 15,000 job cuts and rumors about Nvidia delaying its new AI chip release led to a sharp 10% drop in the Nasdaq, a tech-heavy US index, last Friday. This market turmoil could prompt the Fed to intervene with an emergency rate cut before its next scheduled meeting in September if the situation worsens, according to Neil Shearing, Chief Economist at Capital Economics.
On a somewhat positive note, Claudia Sahm herself stated that the US is not currently in a recession, although the momentum is heading that way. She believes a recession is not inevitable and that there is still room to reduce interest rates. Other experts, like Neil Shearing, acknowledge the poor jobs report but argue it wasn’t catastrophic. Factors like Hurricane Beryl may have contributed to the weak payroll figures, and other data suggest the labor market is cooling but not collapsing. Simon French, Chief Economist at Panmure Liberum, advises taking a broader view, noting that while the jobs data adds to existing concerns, it doesn’t warrant a complete reassessment of the US economy’s health.
