Is US Economy Facing Recession As Jobs Data Signals Slowdown?

Days after US Federal Reserve Chairman Jerome Powell signalled a rate cut in September amid falling inflation, the weaker-than-expected latest jobs data in the US has sent fears across the globe of a likely recession in America, further strengthening the case for a rate cut.

According to the latest data in the US, employers added 1,14,000 jobs, below expectations for an increase of 175,000. The unemployment rate rose to 4.3 per cent, above economists’ expectations that it would be unchanged on the month at 4.1 per cent. According to the CME Group’s FedWatch Tool, traders are now pricing in a 71% probability that the Fed will cut rates by 50 basis points in September, up from 31% before the data was released and from 22% on Thursday.

According to media reports, this higher unemployment rate points to a recession in 2025.

Geojit Financial Services chief investment strategist V K Vijayakumar, said there was consensus expectations of a soft landing for the US economy. However, now, this expectation is now under threat with the fall in US job creation in July and the sharp rise in US unemployment rate to 4.3%. Geopolitical tensions in the Middle East also are a contributing factor.

Anil Kumar Bhansali, head of treasury and executive director, Finrex Treasury Advisors LLP, said, “The recent rise in unemployment rate activated the Sham rule which states that when the three-month moving average of the national unemployment rate rises by 0.50 per cent or more, it onsets the recession fears in the economy.”

According to bitcoin.com, US macroeconomics expert George Gammon said there is likely hard landing for the US economy. He added that while GDP growth and inflation rates appear favourable, the actions of banks are pointing to underlying issues as they are not lending as expected and are instead choosing to buy long-term treasuries.

Ace investor Warren Buffett has also cut its Apple shares by 50 per cent and moved towards US treasuries. His cash holdings currently stand at $277 billion (about Rs 25 lakh crore), compared with $135 billion in 2020. According to reports, he is now bigger holder of US securities than the US Federal Reserve.

According to a note by rating agency ICRA on Monday, “Weak US manufacturing data of July 2024 along with mixed earnings from tech companies sparked worries about a recession in the US.”

On the fear of the recession, crude oil prices hovered at eight-month lows on Monday offseting concerns that escalating tensions in the Middle East may affect supplies from the largest producing region.

Brent crude futures inched down 4 cents, or 0.1%, to $76.77 a barrel by 0035 GMT, while U.S. West Texas Intermediate crude futures were at $73.39 a barrel, down 13 cents, or 0.2%.

The stock markets across the globe also witnessed massive sell-offs, with Japenese stock market falling as much as 12 per cent.

Last week, the US Federal Reserve kept its benchmark interest rate unchanged at 5.25-5.50 per cent. However, its Chair Jerome Powell also hinted at a rate cut in September. He said the reduction of policy rate could be on the table as soon as the next meeting in September. However, it, according to Powell, will depend upon the jobs data and inflation trend.