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U.S. labor market data was released last Friday, showing that only 175,000 jobs were created in April. The markets reacted with a rise in the S&P 500 and a fall in the DXY dollar index. However, the extent of justified optimism remains questionable.
Progress seems evident compared to March, when 315,000 jobs were created, excluding the agricultural sector. The market had forecast some 238,000 jobs.
It should be noted that the main negative impact came from the public sector, which added only 8,000 jobs, compared to the previous creation of between 50,000 and 60,000 jobs.
On the other hand, the private sector remains relatively stable, indicating that, although the rate may appear high, entrepreneurs and the economy are still feeling well.
More specifically, there is a slowdown, but not a catastrophic one.
Here’s the thing: the Fed is not relying solely on employment data.
Inflation is also in play, and the Q1 numbers show no signs of throwing in the towel just yet. Therefore, the Fed will probably play it cool for now without stepping up the tough talk.
This is essentially what we witnessed at last week’s meeting. Now what?
While high rates may not yet have triggered a recession, keeping them at high levels does not bode well, especially for US regional banks.
About 282 of them are said to be skating on thin ice, thanks to risky real estate loans and the specter of higher interest rates. Not that they will go bankrupt soon, but they are struggling.
And while we may not see a wave of bank failures, the economy could suffer. Think of fewer new branches, technology upgrades, and a smaller workforce.
In the grand scheme, it’s not exactly a winning formula for local growth and innovation that spells trouble for the economy. And that’s the best-case scenario…
