Signs of weakness are showing up everywhere.
Both the manufacturing and services sectors activity have fallen in contraction territory, according to the Institute for Supply Management. Construction spending also fell as builders in the private sector continue to confront the higher-for-longer than previously anticipated interest rates environment.
While employment is still growing at a healthy pace, nearly three-fourths of all job creation is concentrated in just two sectors: the Government sector, and the Healthcare and Social Assistance sector. As private sector labor demand declined again last month, wage growth eased further and the unemployment rate moved to its highest level since November 2021.
This week, the Federal Reserve Chair will testify in front of Congress. He is expected to stick to cautious language regarding further progress on the inflation front and the possibility of rate cuts by year’s end. But another weaker than anticipated inflation point could force the Fed’s hand.
After the Fed Chair congressional testimony, another consumer price index update is expected to show that inflation moderated further. A slowdown in car sales and lower prices, lower hotel prices and also easing rent growth are expected to drag down inflation.
As the labor market cools and expected income falls, households will tend to save a higher share of their income and consumer price growth slows.
Any rebound in consumer spending combined with rising U.S. fiscal deficits could push yields higher while also delaying Fed rate cuts.
