Economists have been anticipating a slowdown in the US economy for over a year. The Institute for Supply Management's report on the state of the service sector in April revealed a significant decline, suggesting a potential slowdown in consumer spending. The employment report for April, on the other hand, met expectations, with employment increasing by 175,000 [b428377d] [730cdda0].
However, the Institute for Supply Management's report on the service sector in April also showed a sharp decline in the business activity component. This decline may be attributed to disruptions in the flow of goods caused by various factors. Rising inflation has also affected consumer sentiment, although consumers have maintained their spending pace by relying on credit cards [b428377d].
The US service sector contracted in April as service prices rose, indicating a stagflation warning. The Institute for Supply Management's non-manufacturing PMI dropped to 49.4 in April, the lowest reading since December 2022. New orders for service businesses and production in the service sector also declined. The survey's measure of services sector employment fell, while business input prices and service price inflation increased [240c70fc].
Economists predict that the US economy will cool down, with GDP growth slowing to 2.0-2.5% in the second half of the year. As the Federal Reserve continues to shrink its balance sheet, the inflation rate is also expected to decrease. The core Consumer Price Index (CPI) remains high, particularly due to increases in the housing component. If early indications of a slowdown are confirmed, the Federal Reserve may consider implementing easing measures in December [b428377d].
Stephen Slifer, former chief US economist for Lehman Brothers, provides analysis and insights on the economic situation. He suggests that the decline in the service sector and rising inflation could be early signs of an economic slowdown. Slifer also mentions that consumer spending has been sustained by credit card usage, but if the slowdown persists, it may prompt the Federal Reserve to take action [b428377d].
Despite Federal Reserve Chair Powell's assurances, stagflation appears to be a real possibility due to the combination of rising prices, lagging economic growth, and rising unemployment. The macroeconomic foundation has been set for stagflation with the injection of inflation during the pandemic and loose monetary policy. However, the Fed has not hiked interest rates enough to break the debt-riddled bubble economy, leading to signs of economic stagnation [240c70fc].
A vast swath of the US economy is showing signs of weakness as unemployment rises to its highest point in more than two years. Consumer demand seems to have tapered off so far this summer, according to surveys of American businesses that sell any kind of service to make a profit, ranging from restaurants to dental clinics. The Institute for Supply Managementās latest monthly survey showed that new orders and overall economic activity unexpectedly slipped into contraction territory last month. This apparent slowdown in demand could translate into service-providing businesses hiring at a slower pace and possibly slashing jobs. The US consumer is grappling with high inflation, high interest rates, depleted pandemic savings, and a growing load of debt. Consumer spending, which makes up about 70% of the US economy, has already moderated over the past few months. Hiring trends in the services industry have weakened, with retail trade employment shrinking and temporary help services contracting. Health care, which has been a bright spot, has also noticed softening demand. The job market, which had a stunning comeback after the Covid-19 pandemic, is now showing signs of weakness as unemployment rises and new applications for jobless benefits increase. The Federal Reserve is closely monitoring the job market and inflation as it awaits further evidence of economic stability. [ac5ce25b]