Over the past few days, global stock markets have been experiencing a significant downturn. Trading screens across the US, Asia, and parts of Europe are displaying blinking red numbers heading south. The sudden shift in market sentiment comes as fears grow that the US economy, the world’s largest, is slowing down.
The primary reason for this fear stems from the US jobs data for July, which was released on Friday and fell well below expectations. US employers created only 114,000 jobs in July, significantly lower than the anticipated 175,000 new roles. Additionally, the unemployment rate rose to 4.3%, reaching a near three-year high. This increase triggered what is known as the „Sahm rule,“ named after economist Claudia Sahm. The rule suggests that if the average unemployment rate over three months is half a percentage point higher than the lowest level over the past year, the country may be entering a recession.
Adding to concerns is the fact that the US Federal Reserve chose not to cut interest rates last week, unlike other central banks in developed economies such as the Bank of England and the European Central Bank. However, Fed Chair Jerome Powell hinted at a potential rate cut in September, leading to speculation that the Fed may have delayed action too long.
The technology sector has also been facing challenges, with companies like Intel announcing job cuts and rumors circulating about delays in the release of new AI chips. This news led to a significant drop in the Nasdaq index, further fueling market fears.
If the stock market continues to decline and panic persists, there is a possibility that the Fed may intervene before its next meeting in September to cut interest rates. This could occur if there is a market dislocation that threatens systemically important institutions or financial stability.
Despite the negative news, some experts remain cautiously optimistic. Economist Claudia Sahm stated that while the momentum may be heading towards a recession, it is not inevitable, and there is room to reduce interest rates. Others, like Neil Shearing of Capital Economics, believe that while the jobs report was concerning, it does not signal a collapse in the labor market.
In conclusion, the recent market turmoil and economic indicators have raised concerns about the health of the US economy. While the situation is uncertain, experts advise taking a step back and evaluating the data in context. It is essential to monitor the situation closely and consider the broader economic landscape before drawing definitive conclusions about the state of the economy.