US unemployment worse than expected
“There are data that show this slowdown, and one of the first is employment, but it is not catastrophic. Job creation is positive, around 110,000 last month, but it is still positive creation,” said Luis Gonzali, vice president and chief investment officer at Franklin Templeton, in an interview. “I would not yet think that we are in a recession or that the day is imminent, but there is a tendency to deteriorate.”
CI Banco agreed with this position and stressed that “the market is exaggerating and overreacting to the risk of significant economic weakness or a possible economic recession in the United States.”
Analysts say more information is needed to conclude that the world’s largest economy is facing a sharp slowdown.
“The reality is that we still seem to be far from a recessionary scenario,” added CI Banco.
Last week, the Federal Reserve opened the door to a first rate cut as inflation has slowed.
Fed Chairman Jerome Powell said they will continue to watch the data closely, and if everything continues to move in the current direction, then a rate cut could be on the table at the September meeting.
Powell’s comments do not mean the central bank is seeing a clear slowdown in the economy.
What the Fed is seeking is a soft landing because if the US central bank saw significant signs of a slowdown, the rate cut would have already occurred, Gonzali believes.
What does an economic recession in the US mean?
In addition, poor quarterly results from companies such as Tesla, Alphabet and Amazon fueled concerns about the health of the US economy.
“Traders’ negative sentiment was further affected by poorly received quarterly results from Microsoft, Amazon and Intel. Amazon shares fell on weaker forward guidance, while Intel plunged after poor forecasts, the cancellation of its dividend and the layoff of thousands of employees as part of a general cost-cutting campaign. Microsoft, meanwhile, disappointed on the cloud front,” CI Banco noted.
But Gonzali sees the negative behavior of tech companies as a response to the high expectations they had for artificial intelligence.
“I wouldn’t extrapolate this directly to the economic issue, or to the economy in general. It’s a very small sector, it’s a sector that is driven by a single narrative, which is the narrative of artificial intelligence,” Gonzali said.
