US Economy Outlook
The current economic situation in the US is looking bleak, with a lack of government data due to the shutdown. However, private organizations have released reports that indicate weakening business activity and a cooling jobs market. Despite the lack of official data, these reports suggest that the economy is slowing down.
Services Activity
The ISM services index for September showed a decline, falling to 50 from 52. This indicates flat activity rather than growth in the US. The business activity component dropped to 49.9 from 55.0, which is the lowest point since the pandemic shutdown in May 2020. New orders also declined from 56.0 to 50.4. Although the employment component increased from 46.5 to 47.2, it remains below 50, indicating a slower rate of job losses rather than job growth.
Weaker Jobs Market
The ADP private payrolls numbers suggest that the jobs market is continuing to cool. The job openings numbers within the JOLTS report show that there are now more unemployed people in America than there are job vacancies. This trend is likely to lead to wage increases falling below the critical 3% threshold by early 2026. A slowing quits rate, which is a measure of job turnover, is also pointing to wage growth dropping below 3% in early 2026. This anticipated decline suggests a cooling labor market, where employees may have less leverage to demand higher wages due to a reduction in job openings or an increase in labor supply.
Tariffs and Inflation
Tariff-related concerns persist regarding price and inflation increases. The ISM prices paid series climbed from 69.2 to 69.4, which is significantly exceeding the 50 break-even point. However, tariffs have materialized at a slower pace than anticipated in the primary inflation metrics, namely CPI and the PCE deflator, which are the focus of the Federal Reserve.
Impact on Monetary Policy
Given the current economic outlook, the Federal Reserve may cut interest rates again in October and December. The balance of risks to the Fed’s dual mandate of price stability and maximum employment justifies the central bank moving monetary policy closer to neutral with 25bp interest rate cuts at the October and December FOMC meetings expected. This move would help to stimulate the economy and mitigate the effects of the slowing jobs market and weakening business activity.
Conclusion
In conclusion, the current economic situation in the US is looking bleak, with weakening business activity and a cooling jobs market. The Federal Reserve may cut interest rates again in October and December to stimulate the economy and mitigate the effects of the slowing jobs market and weakening business activity. As the economy continues to slow down, it is essential to monitor the economic indicators and adjust monetary policy accordingly to ensure a stable and growing economy.
