The focus is rapidly shifting from inflation to concerns that the U.S. economy may be cooling too quickly.
Firstly, economists at Goldman Sachs hinted that further softening in labor demand could lead to increased layoffs. The Beveridge curve, which shows the relationship between the unemployment rate and job opening rates, serves as a crucial indicator of the labor market's health. A low unemployment rate and a high vacancy rate signify a tight labor market and a growing economy. Movements along this curve indicate shifts between recession and expansion.
Currently, the U.S. Beveridge curve suggests a critical juncture where a decline in vacancy rates might coincide with an increase in unemployment.
Despite the Fed’s unchanged rhetoric, recent inflation data and retail sales – a significant component of consumer spending – have softened faster than previously expected.
Following a flat April, U.S. retail and food services sales saw a modest 0.1% increase in May. Year-over-year, retail sales were up 2.3%, easing from a 2.7% increase in April. Additionally, new construction permits and starts declined, historically signaling changes in economic conditions. Bond yields continued to decrease throughout the week.
