London (CNN Business) – Concerns about the possibility of the United States sliding into recession dominate conversations among investors and pose a risk to the Biden administration as the midterm elections approach this fall.
Meanwhile, the US economy continues to operate, although there are signs of slowing down.
This presents new challenges for companies and workers. But it could help the Federal Reserve in the medium term, as it tries to reduce support for the economy since the time of the pandemic and control inflation without creating a shock.
Here are three indicators that the engine of the US economy is cooling compared to the hectic period that followed the lifting of the lockdown due to the Corona virus.
1. Labor market: The US employment report for May on Friday showed that 390,000 jobs were added last month. It’s a solid figure and higher than expected, but down from 428,000 in April.
For most of the past year, between 450,000 and 650,000 jobs have been added per month.
2- The housing market: Borrowing costs rose significantly as a result of the Federal Reserve’s decision to begin raising interest rates. The 30-year mortgage rate averaged 5.09% in the week ending June 2, down from 2.99% in the same period last year.
This is driving some potential homebuyers out of the market, helping to mitigate strong demand. US existing home sales declined for the third consecutive month in April.
3. “The Beige Book”: The Fed’s latest study of economic conditions this week, known as the “Beige Book,” shows that all 12 of the country’s counties have seen growth, but the impact of tighter financial conditions is starting to become clear.
“Retail contacts experienced some moderation as consumers experienced higher prices, and residential contacts experienced weakness as buyers faced higher prices and higher interest rates,” the report said.
Eight provinces reported that “the prospects for future growth among their contacts have diminished,” while contacts in three regions “specifically expressed concern about the recession.”
However, the data is confusing. Citigroup economists believe the dip in employment may not be a tangible sign of the economy returning to a more normal pace, for example.
“While this slowdown could be a positive signal to the Federal Reserve that labor demand is declining, in the short term we expect a slower pace of job growth to reflect more labor shortage constraints,” they said in a research note published in a research note. this week. In April there were 11.4 million jobs in the United States.
Also, while home sales fell, prices continued to rise. The median home price in April was $391,200, up 14.8% from a year ago, according to a report from the National Association of Realtors.
This means that it is ultimately too early to say whether the Fed’s plan to engineer a “soft landing” for the economy is working, and that investors would do well to continue moving forward with caution.