In USAlabor market data released this Friday suggest a faster deterioration of its economy than was thought.
According to analysts, this condition of unexpected weakness ‘puts pressure’ on the Federal Reserve (Fed) and puts it on track to cut interest rates in September.
“The world changed from one week to the next“We are very excited about the economic and stock market analysis of CIBanco,” Jorge Gordillo, director of Economic and Stock Market Analysis at CIBanco, told this reporter, recalling that on July 25, the US GDP report for the second quarter of the year was released, which reflected “a solid economy, with certain signs of weakness, but quite strong.”
But this week, the report on the manufacturing activity index – known as ISM – and data on initial jobless claims in the US, as well as a weaker-than-expected employment report, “changed the mood of all the world”.
Analysts and financial markets have modified their expectations in view of the possibility that in the future, the US economy could cool down very quickly andeventually, fall into recession.
On Friday, it was reported that the hiring of workers slowed substantially its pace of growth, increasing by only 114 thousand in July, below the expectation of 175 thousand, and job creation in June, which was revised from 206 thousand to 179 thousand.
In addition, the unemployment rate in the US rose from 4.1 percent in June to 4.3 percent in July, the highest in almost three years, since October 2021.
Not only that, but it recorded four consecutive months of growth, something that had not happened since the period from March to June 2009 during the ‘Great Recession’.
Signs of weakening in the labor market close a Week of disappointing data which makes financial market participants fear a deeper and more pronounced slowdown than expected.
Since Thursday Risk aversion took hold of the markets and shook the Mexican pesoafter US manufacturing activity fell to an eight-month low in July
The manufacturing index (ISM) fell 1.7 points to 46.8 units, its lowest level since last December. A reading below 50 indicates contraction in the sector.
The employment index stood out, with a drop of 5.9 points, the sharpest since April 2022, to stand at 43.4 points, its lowest since June 2020.
Initial claims for unemployment benefits also rose to the highest level in nearly a year after increasing 14,000 to 249,000 in the week ended July 27, adding to evidence that the labor market is unexpectedly weakening.
Continuing claims, which include people who have received unemployment aid for a week or more, rose to 1.88 million in the week ended July 20, which is the highest figure since late November 2021.
Following the data on Thursday, traders were pricing in as many as three rate cuts by the Fed this year, a day after the central bank left interest rates unchanged at a two-decade high.
By Friday, with the US employment report showing signs of moderation, the narrative on Wall Street changed not only for cast doubt on whether the Fed has been slow too much in cutting ratesbut to bet on an aggressive cycle of monetary easing.
Rate cuts are now expected to be earlier, larger than those previously expected this week or more frequent.
But, as Gordillo says, that perception of the markets seems exaggerated andprobably, contains elements of overreactionso we will have to see how the data comes out in the following weeks.
For now, the collapse of the Mexican peso, which closed the week above 19 per dollar for the first time since January of last year, does not favor the vision of a rate cut by from the Bank of Mexico at their meeting next week.
