What is behind speculations on looming US economic slowdown?

As a result of recent weaker than expected US data, particularly from last week and the first two days of the current new trading week, worries and concerns have surfaced regarding the likelihood that the US economy could slide into a deep slowdown in the near future.

Investors first thought that the recent data would encourage the Fed to quicken its plan regarding rate-cutting. However, this did not occur because investors were in a pessimistic condition because of the potential for the world’s top economies to perform worse.

These worries grew significantly on Tuesday as a result of investors’ attention being drawn to a number of unfavourable data points that showed readings that suggested the economy was performing worse than it was.

According to the data released on Monday, the manufacturing purchasing managers’ index dropped to 48.7 points in May of last year from the previous reading of 49.2 points, indicating levels lower than market forecasts.

Following the release of growth data that showed a decline in the US Gross Domestic Product, investors in global markets began to expect that the Federal Reserve would start cutting interest rates in September of next year. This expectation rose as a result of the decline in these data.

According to data released last week, the annual reading of the Gross Domestic Product in the United States increased by 1.3% in the first quarter of this year, which is less than the previous reading of 1.6%.

In contrast to the previous month’s reading of 8.355 million job opportunities—which was below market expectations of 8.340 million job opportunities—the American JOLTS job opportunities index reading on Tuesday came in below market expectations for April of last year, with 8.059 million job opportunities.

Market Response


Since the start of daily trading on Tuesday, US stocks have fallen, primarily due to worries that the US economy may be weakening after demonstrating resilience in the face of a high-interest rate environment.

US stocks are underperforming during Tuesday’s session as they try to defy forecasts of a recent worsening in the US economy, which is pulling most of their indications downward.

The Dow Jones Industrial Average gained almost 32 points, or less than 0.1%, to close at 39,603 points. However, the Standard & Poor’s 500 lost roughly ten points, or 0.3%, and ended up at 5273. The Nasdaq Heavy Technology Industries had a decline of roughly 36 points, or 0.3%, to 16,790 points.

US Treasury bond yields fell during Tuesday’s trading as well, impacted by a worsening of risk appetite in the markets as worries about the US economy’s future direction and potential for a slowdown in the near future surfaced following the release of a number of economic data sets that revealed the fragility of several key sectors.

Since Tuesday’s start of trading, the US dollar has declined, but its decline has been very small because of some data that showed up in the economic calendar, which helped the US currency maintain some degree of coherence.

Employment, Inflation

Some of the positives from last week, most notably the inflation data on the level of personal consumption expenditure indicators in the US, were overshadowed by these anxieties, which surfaced at the start of daily trading on Tuesday. The strength of the possibilities that point to a potential downturn in the US economy is indicated by the supremacy of these anxieties over the markets.

In April of last year, the personal consumption expenditures index in the United States increased by 0.3%. This means that the index did not vary from the previous reading and the expected amount.

This month’s yearly reading of the index showed a 2.7% gain, the same amount as the figure from the previous month. This demonstrates that, in line with investor expectations on international financial markets, the readings of this crucial Federal Reserve indicator did not change in April compared to the prior month.

What is particularly encouraging is that the personal consumption expenditure measurements that do not include the cost of food and energy are the most erratic of all the price components, and the Fed bases its accuracy on these data.

In April of last year, personal consumption expenditures, excluding the cost of food and energy, increased by 0.2%. This was less than the prior reading of 0.3%, which was in line with market forecasts.

However, the annual reading—which does not include the cost of food or energy—showed that, when compared to the reading for the same month the previous year, nothing had changed in April of this year.

The markets are waiting for the most significant and impactful data on price movement during this week. The US employment data is what has the markets anticipating things. Preliminary indicators are released throughout the week, and the main indicators—the US unemployment rate, the index of change in employment in the non-agricultural sector, and wage growth indicators scheduled for Friday.