Global financial markets have been in turmoil in recent days, with trading screens in the United States, Asia and Europe displaying alarming red numbers despite a relative recovery. The sudden drop has raised growing concerns that the US economy, the world’s largest, may be slowing down.
Jobs data raises concerns
The BBC says in a report on the unrest that the main driver of these concerns is the US jobs data for July, which was released last Friday.
The figures showed that the US business sector added only 114,000 jobs, which was far less than the expectations that indicated 175,000 new jobs.
In addition, the unemployment rate rose to 4.3%, its highest level in about 3 years, triggering the “Saham rule.”
This rule, named after economist Claudia Saham, suggests that if the average unemployment rate over a 3-month period is half a percentage point higher than its lowest level over the previous 12 months, the country may be in the beginning of a recession.
In July, the 3-month average unemployment rate was 4.1%, compared to a year-low of 3.5%.
Interest Rates and Fed Actions
Adding to these concerns, the Federal Reserve decided last week not to cut interest rates, unlike other major central banks, such as the Bank of England and the European Central Bank.
However, Federal Reserve Chairman Jerome Powell has indicated that a rate cut could be on the table for September. The delay in cutting rates has led to speculation, according to the BBC, that the Fed may be delaying action, potentially missing an opportunity to boost the economy by making borrowing cheaper.
Impact of the technology sector
The technology sector was also a major contributor to market volatility, according to the BBC, with Intel announcing plans to cut 15,000 jobs from its total workforce, and there were rumours that Nvidia might delay the release of its new AI chip.
The developments led to a sharp decline in the Nasdaq, the US index that includes technology giants, which fell 10% last Friday. The fear caused by this selling in technology stocks has added to the concerns in the broader market.
Recession risk?
While recent data and market reactions have raised alarms, some experts believe talk of a recession may be premature. “We’re not in a recession now, but the momentum is moving in that direction,” Claudia Saham herself told CNBC. A recession isn’t inevitable, she added, and there’s plenty of room to cut interest rates, the BBC reported.
Neil Shearing, chief economist at Capital Economics, told the BBC that market panic could prompt the Federal Reserve to cut interest rates before its September meeting if the situation worsens and threatens financial stability.
He also noted that the July jobs report was weak, but that it may have been affected by factors such as Hurricane Beryl, and other data points to a labor market cooling rather than collapsing.
Simon French, chief economist at consultancy Panmure Liberum, advised caution, telling the BBC: “It’s important to take a step back. Have we suddenly reassessed the health of the world’s largest economy? No, and we shouldn’t.” He acknowledged that the current situation was another data point in a period of uncertainty and uncertainty.
Despite recent market turmoil and disappointing jobs data, the BBC says a recession is not inevitable. The prospect of a Federal Reserve interest rate cut in September and a resilient labour market offer some hope that the US economy can weather these challenges without slipping into recession.
