Is America heading towards a recession?
We ask because U.S. markets are jittery once again.
There was a sell off on Wall Street yesterday.
Tech stocks took a heavy beating.
The Dow Jones and S&P 500 are America's biggest stock
benchmarks.
The largest stock benchmarks in the US.
Both of them fell by over a percent.
Investors are feeling nervous again.
They're looking for a safety net.
Some broad economic trends are making them nervous.
There are signs of distress in the job market.
Plus, manufacturing is slowing down.
Some fresh economic data has come out,
and that has heightened recession fears.
Let's look at this data first.
We have employment. More Americans are filing for unemployment benefits.
There's a sharp spike in weekly claims.
They've crossed to
249,000
now. This is for the week that ended on the
27th of July.
This year, this number has fluctuated between 194,000 and
245,000. That has been the broad range,
but now unemployment benefit claims are above the upper limit
of this range.
And why is this worrying?
Because more Americans are filing for unemployment claims than before.
New applications have hit an 11 month high,
which means fewer jobs are being generated.
And that is A cause of concern.
What about those who already have a job?
How are they faring? Well,
they've not been spared from the bad news either.
Wages and benefits are growing slowly
at a rate of less than 1%.
That's the lowest quarterly rate in three years,
less than 1%. So those waiting for a salary hike
in the US should keep their expectations low.
Unemployment still remains low in America compared to other places.
It is hovering around just 4%.
But the fresh data this week indicates that the job
market is stressed.
Job creation seems to have taken a hit
and that's the first major concern.
The second concern is about manufacturing.
Manufacturing activity appears to be slowing down.
The index that measures this is called
PMIPMI is a purchasing managers index.
It has dropped to an 8 month low.
In the month of July it fell to
46.8. Now ideally this number should stay above 50.
Last month it was 46.8.
This is also impacting job creation.
Reports say factories are either reducing staff or instituting a
hiring freeze.
And this could mean that there's a slowdown in manufacturing
as well.
One reason for this could be the interest rates.
the US Federal Reserve is America central bank.
Its also called the Fed.
Now the Fed regulates the rate of borrowing.
This week the Fed held a review and it kept
the interest rates unchecked.
Today the FOMC decided to leave our policy interest rate
unchanged and to continue to reduce our securities holdings.
We are maintaining our restrictive stance of monetary policy in
order to keep demand in line with supply
and reduce inflationary pressures. For a year now,
the Fed has kept the interest rate steady in the
US,
and this is to fight inflation.
But high interest rates also have a downside.
They squeeze excess money out of the economy.
And critics of the Fed say that high interest rates
are hurting manufacturing in America.
There is less money for expansion.
They argue that the rate should have been cut sooner.
the Fed is now promising a rate cut in the
month of September,
but experts fear that this could further affect growth.
I would say to Jay Powell,
careful what you wish for,
my friend. You were fighting for the 2%
inflation. Well, to get to 2%,
there's there's collateral damage. And
collateral damage is a slowing of the economy.
Investors are trying to avoid risk.
They're moving away from the stock markets and towards the
Treasuries.
That's government debt, the money that governments raise from the
open market for their expenses.
Commonly they're called government bonds.
This is the money that a government borrows.
Now, usually they're safer than the stock market,
is a safe bet to invest in,
and they offer a steady rate of interest.
And there is safety of capital,
of course, since governments are less likely to default.
There is a rally in the American bond market.
Bond buying has now picked up,
especially after the events in West Asia this week,
the attacks in Lebanon and Iran,
where leaders of Hezbollah and Hamas were targeted.
So investors are being careful now.
They're factoring in geopolitical risks while making their investment decisions.
But America's latest economic data is also worrying.
It points towards weakening economic activity.
It seems like a recession cannot be ruled out just
yet.
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Hello and welcome to 1st America
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