US jobs data has sent shockwaves through financial markets, prompting concerns about a potential economic slowdown. July saw the US economy add just 73,000 jobs, significantly below the 100,000 expected by economists. Adding to the unease, figures for the previous two months were revised down by nearly 260,000, bringing the average employment growth to just 35,000 over the past three months – the worst since the pandemic. This has sparked fears of a possible recession.
Wall Street reacted negatively, with the S&P 500 closing down 1.6 per cent. Bond yields also fell sharply, as traders now anticipate the Federal Reserve will soon be forced to cut interest rates, after holding them steady. The disappointing data has intensified the debate around the impacts of trade policies, with some economists arguing that tariffs are already impacting business confidence and hiring decisions.
The looming spectre of stagflation, a combination of slow economic growth and high inflation, has further unsettled markets. Analysts point to rising tariff rates as a significant tax on US consumers, the full impact of which is expected to hit in the coming months. However, concerns are already emerging that these policies are contributing to economic uncertainty, hindering business investment and employment growth.
Economists are now grappling with the question of whether the market has adequately priced in the risk of recession or stagflation, with some arguing that these risks have been largely ignored. The probability of a September rate cut has surged, but the concern remains that these will be ‘bad cuts’ implemented in response to a deteriorating economy. This is in contrast to normal cuts implemented with a healthy economy. Some observers are pointing to a possible self-reinforcing economic downturn if consumer and business confidence is impacted by poor economic data.
