Here's a reworked version:
Recent indicators suggest a slowdown in the U.S. economy, particularly in the once-vibrant services sector. Despite this, overall economic health remains robust, and some moderation is viewed positively by investors, as it could pave the way for potential rate cuts by the Federal Reserve.
A significant signal of this slowdown was the latest employment report, showing 175,000 job additions in April, a notable decline from the 315,000 in March. Of particular concern was the sharp drop in job growth in the leisure and hospitality sector, from 53,000 to just 5,000. This trend was echoed in earnings reports from major food-service companies like Starbucks and McDonald’s, both noting a more cautious consumer approach. Kraft Heinz also reported reduced purchases from out-of-home venues like restaurants.
McDonald’s CEO Christopher Kempczinski pointed to consumer caution, attributing it to recent inflation. Starbucks reported a 3% decline in North American comparable-store sales in the first quarter, leading to a 15.9% stock price drop, mainly due to weakness in China.
Furthermore, a monthly survey by the Institute for Supply Management showed services-sector activity contracting in April for the first time in 15 months, with declines in employment, new orders, and business activity.
Despite these challenges, not all indicators were negative. While the unemployment rate edged up to 3.9% in April, it has largely remained between 3.7% and 3.9% since August of the previous year. Bank of America economists noted that the rapid post-pandemic catch-up in services-sector employment seems to be tapering off, which they interpret as a neutral sign for the economy.
A positive note for the Federal Reserve is the ongoing slowdown in wage growth, with average hourly earnings increasing just 3.9% from a year earlier in April. This suggests that pricing pressures may be easing, despite recent reports of high inflation.
The soft jobs data on Friday prompted investors to reconsider the possibility of rate cuts, leading to stock gains and bond yield declines. While a rate cut at the Fed’s next meeting in June seems unlikely, the probability of a cut by September, as implied by the Fed Funds futures market, rose to 67.1% late Friday. If economic data continues to support this trend, the possibility of a cut in July could also increase. Goldman Sachs sees this as a possibility, but not their base case.
Overall, a slight summer slowdown might be beneficial for the economy, allowing for adjustments to changing conditions.