US Firms Point to Slowing Activity and Softer Labor Market, Fed Survey Shows

  • U.S. economic activity expanded at a slight-to-modest pace from late May through early July. Firms are expecting slower growth ahead as they also reported signs the jobs market continues to soften. The softening job market aligns with the Federal Reserve's recent pivot to more keenly assessing slowing labour market demand to ensure it doesn't wait too long before cutting interest rates.
  • "Economic activity maintained a slight-to-modest pace of growth in a majority of districts this reporting cycle," the Fed said in its survey released on Wednesday, which polled business contacts across the central bank's 12 districts through July 8.
  • "Expectations for the future of the economy were for slower growth over the next six months due to uncertainty around the upcoming election, domestic policy, geopolitical conflict, and inflation," the Fed survey said.
  • The Fed's analysis, released roughly every six weeks, comes as Fed Chair Jerome Powell and his colleagues emphasised that risks on inflation and jobs are now in balance. Earlier on Wednesday two top Fed officials said interest rate cuts are "getting closer," remarks that appear to set the stage for a lowering of borrowing costs in September.
  • Fed officials recently have said the labour market has come into better balance thanks to an influx of workers, many of them foreign-born, a development also represented in Wednesday's report. The Boston Fed said Cape Cod contacts noted normal levels of availability of foreign-born workers through short-term visa programs, which support the seasonal labour demand in the area.
  • The Fed is trying to engineer a so-called "soft landing" for the economy, in which economic growth gradually slows and the unemployment rate remains as inflation, which spiked to a 40-year high two years ago, returns to the Fed's 2% target rate.
  • The unemployment rate hit a 2.5-year high of 4.1% in May, with annual wages growing at the slowest pace in three years amid an expanding labour pool, the latest government data showed.

(Source: Reuters)