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(Trends Wide) — After months of a remarkably strong US job market and economy, everything seems to be slowing down.
The latest high-frequency data shows that the consumer may be losing momentum, hiring is moderating, business activity is weakening, interest rate sensitive sectors are pulling back and housing is suffering.
The question is whether the monthly employment report for this Friday, undoubtedly the most anticipated data of the week, will confirm the trend.
The unwavering resilience of the US labor market is one of the biggest sources of stress in today’s economy. Federal Reserve officials have said that jobs numbers and the pace of wage increases need to slow before “sticky” inflation can be overcome.
In the last year, the Federal Reserve (Fed) raised interest rates from near zero to a range of 4.75% to 5% to cool the economy. But the employment numbers have exceeded expectations for the past 11 months. Unemployment currently stands near record lows, at 3.6%.
A slowdown in the official US employment report this Friday could signal a sea change in the economy.
Slow cooling: “The latest labor market data, coupled with our conversations with company executives, indicate that hiring efforts have slowed markedly in many sectors,” Gregory Daco, chief economist at EY, wrote in a note on Wednesday. This could mean March payrolls come in well below the 240,000 consensus estimate, he added.
Other employment data released this week shows that hiring may be slowing. ADP estimated that private sector employment increased by 145,000 jobs in March, below the consensus forecast of 200,000; and ADP’s measure of year-on-year wage growth slowed to 6.9% from 7.2%.
For its part, the JOLTS report for February showed that job offers fell by 632,000 positions, to 9.93 million, compared to 10.56 million in January. This is the lowest level of job offers since May 2021.
The strength of the US consumer — which Bank of America CEO Brian Moynihan previously said was single-handedly propping up the US economy — also appears to be waning.
Spending momentum cooled in February, and analysts expect more weakness in March.
The US Treasury releases daily data on tax rebates, and “the level of household tax rebates tells us something about how much support there is for consumer spending,” said Torsten Slok, chief economist at Apollo Global Management. In recent weeks, tax refunds have come in at a slower rate than in the previous two years.
“Credit conditions are tightening and recent stress in the banking sector will only further exacerbate the impact, causing a slowdown in spending on high-value goods and services,” Daco wrote.
Existing home sales, meanwhile, have plummeted more than 20% in the past year, and the latest ISM survey shows business investment slowing. The commercial real estate sector is in trouble and while the major US stock indices have risen this year, there is underlying weakness in market fundamentals.
To complete: “The economy is not doing well. It’s not the flu, but it’s a sore throat. And it’s unlikely to get better in the next few months,” Daco wrote.
This Friday’s jobs report will give us a better idea of how sick the economy really is.
IMF: Geopolitical tensions further threaten banking stability
Strained relations between China and the United States and Russia’s invasion of Ukraine have led to increased financial isolation in recent years.
Those tensions have slowed international investment and hurt payment systems and asset prices, undermining global financial stability, the International Monetary Fund (IMF) wrote in a new report on Wednesday. “This, in turn, fuels instability by increasing banks’ funding costs, lowering their profitability and reducing their lending to the private sector,” they noted.
The report comes at a time when credit lines are tightening after the collapse of Silicon Valley Bank and the subsequent crisis of the financial system.
Added to this is the increase in geopolitical tensions, according to the IMF. “The imposition of financial restrictions, increased uncertainty and cross-border credit and investment outflows caused by an escalation of tensions could increase the risks of refinancing debt and the financing costs of banks,” according to the report, led by Mario Catalán, deputy head of the IMF’s Monetary and Capital Markets Department.
Such stresses, the researchers wrote, “could also drive up interest rates on government debt, reducing the value of banks’ assets and increasing their financing costs.”
At the same time, geopolitical tensions also affect banks through the real economy. Supply chain and commodity market disruptions hurt growth and cause high inflation, which reduces bank profitability.
“The stress is likely to decrease banks’ risk-taking capacity, prompting them to reduce lending, which would further weigh on economic growth,” the report said.
Walmart will reduce the pace of hiring and bet more on AI
Walmart plans to slow its hiring pace in the coming year and focus on developing artificial intelligence (AI) technology to serve customers.
The retailer announced at its annual investor meeting this week that it intends to rely heavily on automation to achieve its goal of adding more than $130 billion, or 4%, in sales over the next five years.
“We will increase our revenue, improve our margin and improve our return on investment,” CEO Doug McMillon told investors Wednesday. “That is reflected in our five-year plan. We believe that growing a company of this size in the 4% range over time and growing profits faster than sales is achievable.”
Walmart also said it plans to serve about 65% of its stores using automation by 2026. The company also announced that it expects 55% of fulfillment center volumes to go through automated warehouses in the next three years, saying that would reduce unit cost prices by 20%.
Walmart shares closed this Wednesday with an increase of 1.7%.
