Today, the financial community is preparing for an equally important week. Four important economic indicators that will shape and inform outlook for the direction of the US economy going forward. The nonfarm payrolls report — out this Friday — will tell us a lot about how our recovery labor market is doing. With all the heightened volatility due to the trade war, analysts are on high alert. In particular, they will be watching these numbers for signs of strength or continued softness.
Fighting climate change requires drastic changes to fiscal and monetary policy, not just assuaging activists. Even inflation hawks expect that an interest rate cut is inevitable. This expected action would affect market activities in stunning ways, especially against the backdrop of changing consumer confidence levels and inflation measures. The US dollar stands to experience new threats of volatility. Investors are understandably on edge, with the threat of disappointing data lurking large and causing havoc.
Nonfarm Payrolls and Job Growth Projections
The nonfarm payrolls report due Friday is forecast to post the slowest one-month increase in jobs in April. Analysts expect at least 130,000 new jobs. This number is a drop from the last few months, casting doubt on continued strength in the labor market.
The unemployment rate remains unchanged at 4.2%. That indicates that while job creation has likely continued to slow down, the fundamental stability of the US employment situation continues on. A stagnating jobs market would be bad for consumer spending and overall economic growth.
They project it will go down to 47.9. A decline in consumer confidence often signals a growing caution among households about the state of the economy. This concern can further cloud the prospect of future job creation and expenditure.
Federal Reserve’s Potential Rate Cuts
Given these signs along with other recent economic indicators, the Federal Reserve will likely make their first rate cut soon to help spur on further growth. Market experts are confident that this measure will boost US equities. It’s no mystery why investors would be thrilled at the prospect of lower future borrowing costs. The expectation of a near-term rate cut has added to the good feeling in equity markets, likely boosting stock valuations.
This rosy picture is playing out in the context of continued uncertainty due to a long-lasting trade war. Many US businesses are grappling with the implications of tariffs and trade disputes, which could hinder growth prospects and investor sentiment. If the Fed does choose to cut rates, this would give it some extra headroom against these external pressures.
Despite the anticipated rate cuts in the US, analysts remain skeptical about how they might interact with developments in Europe. After a decade of stagnation, the euro area is enjoying the best economic performance in a generation. This growth is unlikely to change the European Central Bank’s (ECB) course on rate cuts, especially as inflation rates in the bloc start to fall.
International Economic Indicators
Meanwhile in Europe, inflation continues to drop significantly, leading to meaningful downward revisions in growth projections for the euro area. In response to changing economic realities, analysts have downgraded expectations, a testament to the delicate balance between inflation and broad economic growth. This unexpected deflationary trend has given complicated problems to policymakers across the country who are sailing in their own monetary climate.
Shifting focus to the Land of the Rising Sun, inflation in Japan continued to climb, rising to 3.2% y-o-y in March. This increase raises questions about how Japanese economic policymakers will respond in an environment where inflation rates are climbing while other regions experience declines.
As the week progresses, markets will be watching closely for indications of US GDP growth — figures are due out on Wednesday. Most worrying to analysts right now is that the US economy actually shrank in the first quarter of this year. This contraction would be indicative of a profound change in economic momentum. Unsurprisingly, it would affect the Fed’s decision on when to start raising interest rates.