{"id":13257,"date":"2024-07-10T19:19:01","date_gmt":"2024-07-10T19:19:01","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=13257"},"modified":"2024-07-10T19:19:01","modified_gmt":"2024-07-10T19:19:01","slug":"will-the-fed-cut-rates-as-economy-slows","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/will-the-fed-cut-rates-as-economy-slows\/","title":{"rendered":"Will The Fed Cut Rates As Economy Slows?"},"content":{"rendered":"\n

Sean H. from Mobile, AL asks:<\/em> Hi Mitch, my question is about some recent economic data. Do you think June\u2019s job numbers and the plummet in services activity finally mean the economy is slowing down enough for rate cuts?<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Great question, Sean. I\u2019ll share the jobs and services data first, so readers understand the basis for your question. Then I\u2019ll discuss the possibility of rate cuts\u2014and whether it matters.<\/p>\n\n\n\n

First is job data. The U.S. Labor Department reported last week that the economy added 206,000 jobs in June, which registers as a solid showing. Importantly, however, April and May\u2019s payroll numbers were revised lower by a combined 111,000 jobs, and more people came off the unemployment sidelines and entered the labor market\u2014which had the effect of pushing the unemployment rate higher.1<\/sup><\/p>\n\n\n\n

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In about a year, we\u2019ve seen the unemployment rate go from 3.4% to 4.1%, which is a pretty significant jump. To be sure, a 4.1% unemployment rate is still historically low. But this data does offer evidence that the labor market is slowing. Average hourly earnings also ticked up at their slowest pace since 2021, rising 3.9% year-over-year in June. Wages are still rising faster than inflation, which is good for U.S. consumers, but the softer data across the board does give the Fed some breathing room when it comes to rate cuts, in my view. If the labor market were running hotter-than-expected, it\u2019d be much harder for the Fed to justify cutting rates later in the year.<\/p>\n\n\n\n

The next part of your question mentioned services activity, which saw a very surprising dip in June. In fact, services activity\u2014which is far more crucial to U.S. economic growth than manufacturing\u2014contracted at the fastest pace in four years. The Institute for Supply Management\u2019s headline Services PMI fell -5 points to 48.8, with the business activity component of the index plummeting -11.6 points to 49.6. Any reading below 50 signals contraction, so these numbers raised several eyebrows indeed.<\/p>\n\n\n\n

One thing to understand about PMI data, however, is that it tells us how many firms are seeing expansion or contraction activity\u2014but it does not tell us by how much. Survey responses for the month indicated that activity was softer in June but there were no signs of demand collapsing outright, so June may have been an anomaly in what\u2019s been an overall strong 2024 in the services sector. It\u2019s also true that if you look at S&P Global\u2019s services index for June instead of ISM\u2019s, you\u2019d see very different results. S&P Global\u2019s services index hit 55.3 in June, which suggests overall expansion.<\/p>\n\n\n\n

Taken together, I think the U.S. economy is coming more into balance\u2014not too hot, not too cold. I think that means the Fed will be looking solely at inflation in July and August to determine if a cut happens in September. I would not expect any change to the benchmark fed funds rate in the July meeting.<\/p>\n\n\n\n

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June job numbers and other data suggest the economy is cooling, but Mitch looks at whether it’s enough to justify a cut in interest rates. <\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-13257","post","type-post","status-publish","format-standard","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13257","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=13257"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13257\/revisions"}],"predecessor-version":[{"id":13259,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13257\/revisions\/13259"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=13257"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=13257"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=13257"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}