Three indicators which show the US economy may be slowing down

US Fed

The US economy is now hitting the brakes due to the aggressive rate hike cycle pursued by the Federal Reserve, which it advocated over the last year or so to combat inflation and bring price stability.

It is due to the hawkish stance of the Fed that the US markets have already endured the collapse of Silicon Valley Bank (SVB), Signature Bank and the Silvergate Bank with projections by prominent finance analysts like Peter Schiff, Jeremy Siegel among others of more difficult times to come for the global economy.

Let us look at three indicators, which show the US economy may be slowing:

Also Read: Ray Dalio says SVB failure is ‘canary in the coal mine’; warns of knock-off effects

1. Decline in Manufacturing Activity: More signs of a recession started flashing this week when the ISM survey reflected that manufacturing activity declined in March to 46.3, the lowest level since May 2020 i.e., since the outbreak of the Covid-19 pandemic globally. All components of the manufacturing index declined below 50 for the first time since early 2009. It is to be noted that any reading below 50 indicates that manufacturing activity is contracting.
2. Labour Market has started to weaken: Latest data on the employment front also showed signs that the consistently outperforming labour market over the past few years is starting to weaken due to the economic slowdown. The ADP jobs report on national employment showed 145,000 jobs were added in March, missing expectations by 65,000 and well below February's reading of 261,000. The weakness in economic data continued further, as job openings fell below 10 million in February for the first time since May 2021, and weekly jobless claims hit 228,000 last week, ahead of the 200,000 analysts expected. The Federal Reserve Bank of Atlanta has taken note and is focused on the rapidly deteriorating economic data. This has resulted in them lowering their GDP forecast considerably over the past two weeks due to the same. Towards the end of March 2023, the GDPNow forecast from the Fed expected the US economy to grow 3.5 percent in the first quarter. Two weeks later, it slashed its GDP forecast by around 2 percent to just 1.5 percent.
3. Retail sales growth has started to slump: A potential economic slowdown is also starting to show up in retail sales growth, which fell 0.4 percent in February. That weakness is bound to spill over in the months to come, as reflected by the March data based on Costco's results. The wholesaler stated that its retail sales growth fell 0.9 percent at its stores in March, representing its first monthly sales decline in almost three years. While more and more data suggest that consumers are curtailing their spending, some Fed Presidents don't seem to mind as they remain focused on bringing inflation down to its 2 percent target.

Fed Presidents continue to maintain their hawkish stance.

Fed President Loretta Mester said on Tuesday that interest rates need to rise above 5 percent and stay there for some time to combat inflation, and Fed President Bullard reiterated his view on Thursday that the Fed can continue to hike interest rates while using other monetary policy tools to handle potential financial stress.

CONCLUSION

Loretta Mester's recent hawkish comments have contributed to further escalating the market's pessimism. The US stock markets are now consolidating sideways, and traders are waiting for Fed’s next reaction to the most recent data.

It is also to be seen whether corporate earnings results will prove as resilient as they have over the past few quarters. As the market anticipates serious downgrades for businesses going ahead even though rate hikes might ease. First-quarter earnings season in the US kicks off next week with the banking stocks, while the March jobs report in the US has just beaten estimates as they have added 236,000 jobs in March 2023. Wall Street will acknowledge the same report and react once the US market opens next week.