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OMAHA, Neb. — What a difference the jobs report makes. Earlier this summer, people were worried about the economy overheating. But now – mainly to deal with Employment data weaker than expected Released on August 2, 2024– Stock market crashSome analysts even worry that A recession may be coming.
as a Professor of Business EconomicsI plead with everyone, from investors to consumers to policymakers: Please calm down, take 10 deep breaths, and relax. Taken together, the economic data paint a brighter but more complicated picture.
Why investors are selling
when Latest US employment report releasedthe market is not happy. “Dow plunges nearly 1,000 points after report shows sharp drop in U.S. payrolls” read one headline. When the report was released, the Dow Jones Industrial Average closed down about 2% compared to the previous day’s close.
Sell-off intensifies, global stocks Plunge Investors spent the weekend digesting the jobs data. Dow Jones Indexthis S&P 500 and Nasdaq Composite Index On August 5, Japan’s Nikkei index also fell. Closed down 12%,dramatically drop.
The report that set off all this turmoil found that the U.S. economy added just 114,000 jobs in July 2024, below expectations for 175,000.
The data were widely viewed as disappointing; as CNN put it, they raised concerns that “The job market is slowing too fast, which could trigger a recessionMany news reports have pointed out that the report Trigger indicator is called Sam’s RulesThe indicator has accurately predicted recessions in the past.
Faced with this clear threat of recession, many have criticized the Fed for not cutting interest rates sooner. U.S. Senator Elizabeth Warren said the Fed Chair “Made a serious mistake by not lowering interest ratesShe added: “He has been warned time and again that waiting too long could lead to financial ruin.”
Although the Federal Reserve Rate cut expected in Septembercritics have called on it to speed up its pace.
But all of this—the selling, the pleas to Fed Chairman Jerome Powell, the talk of “Hard Landing“–premature.
Don’t panic
It’s true that the latest jobs data came in below expectations. It’s also true that the stock market closed lower on the day the data was released. But that doesn’t prove a recession is imminent, that the Fed is mismanaging, or that anyone’s 401(k) is in jeopardy. It just means that the economy is slowing down — which, I might add, was expected.
This is because the Fed has been trying to slow economic growth to reduce inflation. Since May 2022, its strategy has been to gradually raise interest rates, thereby slowing demand and, in turn, reducing inflationary pressures. If successful, this strategy is thought to lead to slower economic growth and lower (more stable) inflation while avoiding a recession. In other words, this is known as a “soft landing.”
The jobs data tell a more complex story than the headlines suggest.
There are indeed signs of layoffs. Agricultural machinery giant John Deere has been making headlines for months. Plans to lay off about 600 employees. Computer chip maker Intel is There are also plans to lay off employees.
The report itself also pointed out net losses in the automotive industry, information services and temporary jobs.
To be sure, the impact of these job losses on individuals and their families will never diminish. However, while some industries are shedding jobs, others are adding jobs: employment in construction, transportation, and health services are all up.
Such mixed signals across industries are fairly common. They suggest the job market is slowing overall — a stark contrast to what happens during recessions, when layoffs tend to occur across the economy.
It’s also worth considering the broader context. While the latest data are disappointing, this is the recent exception rather than the norm. Job market exceeds expectations
U.S. economy 272,000 new jobs created in MayFor example, the unemployment rate fell sharply, far higher than the 180,000 that analysts expected. At the time, some criticized the Fed for not doing enough to slow the slowing economy, the exact opposite of Warren’s current complaints.
So what does the July 2024 jobs report portend? Ultimately, I think it just means the economy is slowing. Higher interest rates are dampening demand, encouraging slower job growth, and taking some pressure off wages and prices. That’s it. Soft Landing Even the gentlest of landings can be a bit bumpy.
Before overreacting further, market watchers would be wise to turn their attention to the two reports due out before the Fed’s September meeting: The next inflation report will be released on August 14, and the August employment report will be released on September 6. If the CPI growth rate is 2.75% or lower and job growth is again lower than expected, the Fed will almost certainly cut interest rates by 25 basis points in September.
While I’m sure there will be some pundits complaining that the rate cuts are too small, a period of steady rate cuts is coming.
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