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Washington
CNN
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Much of the US economy is showing signs of weakness as unemployment rises to its highest point in more than two years.
Consumer demand appears to have waned so far this summer, according to surveys of US businesses that sell all kinds of services to profit, from restaurants to dental clinics. That weakness is also visible in the latest spending figures — a far cry from last year’s lucrative summer spending spree, when Americans splurged on high-profile movies and concerts.
The Institute for Supply Management’s latest monthly survey of economic activity in the services sector showed that so-called new orders and overall economic activity unexpectedly fell into contraction territory last month. The main index fell to a reading of 48.8 in June from 53.8 in May as the new orders sub-index saw an even bigger drop, falling to 47.3 from 54.1. (A reading above 50 indicates expansion while anything below that threshold indicates contraction.)
This apparent slowdown in demand, if it continues long enough, could translate into service businesses hiring at a slower pace and possibly cutting jobs. The vast majority of employment in the United States is considered service provision, specifically 86% of the 158.6 million total U.S. jobs from June.
“When you think about services, a lot of them are consumer-driven, and consumers are the key to where the US economy goes,” James Knightley, chief international economist at ING, told CNN. “We’re starting to see stress in more and more families.”
The American consumer is indeed under pressure, dealing with still-high inflation, the highest interest rates in more than two decades, depleted pandemic savings (by some measures) and a growing debt load. Consumer spending, which makes up about 70% of the U.S. economy, has already moderated in recent months, government statistics show, and retailers themselves have said they’ve seen shoppers across the income spectrum change their behavior. buyer.
One food service business surveyed by ISM said “sales and traffic remain soft compared to last year,” blaming “high California gas prices and continued news about inflation and restaurant menu prices.” Spending at restaurants and bars fell 0.4% in May, according to the Commerce Department’s latest retail sales figures. One retail company told ISM: “With inflation going on, will customers have enough funds to spend?”
Knightley provided CNN with an analysis of government data showing that Americans in the top 20% of earners were responsible for a large share of spending on services related to transportation (air travel and cruises), recreation, food and finance. The bottom 60% of households by income accounts for a greater proportion of spending on health care services.
But it will take time before the slowdown in demand translates into slower hiring or layoffs, as businesses have to determine if they just faced a bad month or two, maybe even a bad quarter, Scott Hamilton, chairman of global HR and compensation consulting at Gallagher, told CNN.
Businesses that provide services have already been hiring at a weaker clip. Those firms added 168,000 jobs a month, on average, from April to June, according to new Labor Department data released Friday. This is well below the average for the previous three months, from January to March, which was 241,000 jobs. Last year, the average monthly job gain in the services industry was 228,000 jobs. Employment trends, of course, vary within the service sector, a large part of the labor market.
Last month, retail trade employment contracted for the first time since November, while temporary help services shrank by 48,900 jobs, dragging down the broader professional and business services sector, which lost 17,000. workers. Healthcare has been a bright spot for the services sector, adding jobs at a rapid pace over the past few decades, barring a downturn in 2020 due to the Covid-19 pandemic, but even then, some businesses in that industry has recently noticed a softening of demand.
“Demand for services has moderated following near-record patient levels in the past month,” one healthcare and social assistance firm said in the latest ISM survey.
The labor market made a stunning comeback as the broader US economy recovered from the Covid-19 pandemic, ultimately leading to unemployment falling to a half-century low of 3.4% in 2023 for the first time. However, it has softened recently, with unemployment now at 4.1%, the highest level since November 2021, and new applications for unemployment benefits on an upward trend. Fed officials are watching closely for any alarming signs of weakness in the labor market as they wait for further evidence that inflation will continue to slow without being sabotaged by an unexpectedly hot economy.
For the first time ever, Tesla cars have been placed on the Chinese government’s shopping list, according to state media Paper.cn.
Tesla is the only foreign-owned EV car brand in the shopping catalog published by the government of east China’s Jiangsu province. Other brands mentioned include Volvo, owned by China’s Geely, and state-owned SAIC, my colleague Laura He reports.
That means government agencies and public groups in the province can buy them as utility vehicles, underscoring the cozy relationship China has with Elon Musk’s company.
The development has gone viral on Chinese social media, with some users questioning whether foreign cars should be considered for government use.
The Jiangsu government has tried to ease such concerns by saying the Tesla model is “a domestic car, not imported,” according to a report by the state-owned National Business Daily on Thursday, citing a government official.
Tesla, which has a massive factory in Shanghai, produced about 947,000 cars in China in 2023, and most of them were used in the country.
Read more here.
Tuesday: Federal Reserve Chairman Jerome Powell testifies before the Senate Banking Committee. Fed officials Michael Barr and Michelle Bowman provide comments. China’s National Bureau of Statistics releases June inflation data.
Wednesday: Federal Reserve Chairman Jerome Powell testifies before the House Financial Services Committee. Chicago Fed President Austan Goolsbee comments.
Thursday: Earnings from Pepsico, Progressive, Delta Air Lines and ConAgra Brands. The US Department of Labor releases the Consumer Price Index for June and reports the number of new applications for unemployment benefits in the week ending July 6. Atlanta Fed President Raphael Bostic comments. China’s customs agency releases June data on trade flows.
Friday: Earnings from JPMorgan Chase, Wells Fargo, Citigroup and The Bank Of New York Mellon. The US Department of Labor publishes the Producer Price Index for June. The University of Michigan releases its preliminary reading of consumer sentiment in July.