Employment rates rose again in the United States in May, with 339,000 additional jobs, beating estimates, and increased by more than 294,000 jobs in April. At the same time, the unemployment rate rose to 3.7% from its historic low of 3.4%. Wages rose slightly, with average hourly earnings up 0.3%, down slightly from 0.4% in April, according to government data released on Friday, as US President Joe Biden commented on the data saying, “Today is a Good day for the American economy and for American workers. He added that the unemployment rate has fallen below 4% for 16 consecutive months.
Turning to unemployment benefits data, the number of Americans filing new claims increased significantly last week, indicating a slowing labor market with growing recession risks.
On Thursday, the Labor Department said first claims for state unemployment benefits increased by 28,000 to a seasonally adjusted level of 261,000 in the week ending June 3. Economists polled by Reuters expected 235,000 applications to be submitted last week.
The World Bank and growth forecasts
The World Bank raised its forecast for growth of the world economy in the current year from 1.7%, according to its forecast published in January, to 2.1%, in its latest report, “Global Economic Prospects ”, against 3.1% reached by the economy in 2021. 2023 to 1.1% against 0.5% in January, but it also cut its forecast for the largest economy in the world in half in 2024, to 0 .8% against 1.6%.
In turn, Federal Reserve officials have indicated that interest rates should remain at current levels at their next meeting on June 13-14, before preparing to raise them again later this summer.
Economic recession
The National Bureau of Economic Research in the United States defines a recession as “a significant decline in levels of economic activity, which lasts for more than a few months and is represented by a decline in levels of output, employment, real income and other indicators.” Recession often begins when the economy reaches its peak of activity. And it ends when the economy reaches its lowest levels, as the World Bank sees represented in “shrinking economies many large countries at the same time, in addition to other indicators indicating weak global economic growth, represented by the prolonged decline in gross domestic product, and the rise in the unemployment rate with a decline in overall demand for goods and services .
In his analysis of US economic data over the past week, economist and former economy minister Dr. Nidal Al-Shaar said: “Last week was very positive for the US economy as all the indicators have increased and the economic variables are better than expected, and we can say that it has been a surprising week, especially with regard to the labor data which It was much better than expected with around 339 thousand new jobs , while around 190 thousand jobs are expected, which has been a stimulus for the markets in addition to changing the mood of many investors, since there is no longer any talk in the markets of the economic recession according to these data, but rather there is a belief that the US economy is in good shape and that the European economy will follow.”
Last week also saw an increase in the dollar exchange rate and a drop in the price of gold, based on the inverse relationship between them, in addition to the drop in the price of oil to $68 a barrel, then of rising to $72 a barrel. This optimistic outlook points to further economic growth and therefore an increase in demand for goods and services as well as oil and energy derivatives in general, according to Dr Al-Shaar.
However, Dr. Al-Shaar believes that strong data for one week is not enough to change his view of the US and global economy, and he expects the US economy and most global economies to experience a economic recession in the second half. of this year, and he also believes that the economic data will not be as positive going forward as it was last week, and will therefore change. The optimistic view of rapid economic growth outweighs the reality.
Al-Shaar adds: “On the other hand, there is an escalation of the tense geopolitical situation between Russia and Ukraine, so how can one be optimistic about the general economic situation in the world in the light of this escalation, in addition to the fact that Europe is still suffering from inflation despite its decline, because European policies tend to increase interest rates, as well as politics. This simple optimism has led investors to believe that the US Federal Reserve has succeeded in its policy of reducing inflation rates and that it is continuing with its policy of raising interest rates.
In turn, Mazen Salhab, Chief Market Strategist at BDSwiss MENA, said in his interview with Sky News Arabia Economy: “Recession is the exceptional case of the economy and is not the general trend. America , for example, has experienced fourteen recessions since 1930, when the years were the Great Depression, Historically, periods of recession have been relatively short, considering the history of economic growth and the cycle of growth of the economy. For example, the recession, due to the impact of the pandemic, lasted only two months, while the impact of the 2008 global financial crisis lasted a year and a half.
Salhab adds, “To be precise, a recession is when a country’s GDP growth declines for two consecutive quarters, such that it becomes negative, i.e. below 0%. L “US economy grew 1.3% in the first quarter of this year. , which is the weakest since the quarter. The second is last year, but to answer the question of the recession in America , we must first know what are the components of the growth in the first place of the gross domestic product?The factors that affect the gross domestic product of the United States are personal consumption and its expenditures, and this includes services such as the banking, medicine, and education, in addition to U.S. domestic investment.Exports of U.S. goods and services, and government expenditure and consumption .
US non-farm labor market numbers may have reassured markets that the recession is a long way off, but the recession is not happening suddenly or quickly because personal spending levels in the US are remained high, but their monthly figures vary a lot and quickly, and in the confidence of American consumers, there is relative stability and that is good. However, the five-year index has given the possibility of a regression and this may translate into lower spending and consumption. As for personal income levels, they look good now and increased by 0.4% in April compared to 0.3% in March, and this is also a positive sign, according to Salhab.
And the chief market strategist at BDSwiss MENA explains that interest rates remain high in America, even if the Federal Reserve does not raise rates at its next meeting in a week. If interest rates were raised at the next meeting, as interest rates in the United States are currently at 5.25%, which is the highest since 2007/2008.
Here, one can say, continues Salhab, “The recession in America, if it occurs, will not occur before the last quarter of this year, because the decline in consumption, spending, consumer confidence and behavior requires a decline in the labor market and wage levels, and that, in our view, will not happen very quickly, not for another six months.” at least.
Salhab believes that strong US jobs data paves the way for another interest rate hike after a week, to 5.50%. However, the US interest rate hike cycle will come to an end or has reached the end of the road, in accordance with the slow countdown to the decline in inflation, which reached 4, 9%, indicating that the US Federal Reserve will not keep interest rates high if the gradual decline in inflation continues, and may therefore increase them after a week by a quarter of a percentage point to give room for them to lower further and maintain reasonable interest rates over the next two years.
Accommodative monetary policy to the real economy will always be there, even if the Fed does not say so. It is important to say that not raising interest rates at the next meeting may not be positive for equity indices as many expect, as it could give the opposite negative signal that the economy is starting to showing signs of exhaustion due to the continued rise in interest rates. , according to the Chief Market Strategist at BDSwiss MENA.
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