How is the stock market doing? What a better day means for the economy as a whole
When global markets fall into the red, as they did on Monday, investors are shaken and 401(k) plans suffer. Should that worry us about the direction of the economy? Several other numbers suggest otherwise.
After three days of losses, including Monday’s sell-off, the three major U.S. indices regained ground on Tuesday, and early trading on Wednesday morning set markets up for what could be another positive day.
Recently, however, a gap has emerged between investors’ and economists’ forecasts for the future.
The economic news that changed the trend in investor confidence came on Friday morning, when the U.S. Labor Department reported that the U.S. economy created fewer jobs than expected in July and the unemployment rate rose to 4.3 percent.
The unemployment rate has increased in every month of 2024 except February. Nevertheless, the economy added jobs in July and the unemployment rate remains historically low.
Unemployment rate rises above 10-year median
What remains is a mixed picture. The problems that have driven global stock markets down in recent days are much more diverse and complex than just a disappointing jobs report. Could Friday’s jobs figures increase the risk of a recession? Possibly. But other data points are not trending in that direction.
“Concerns about the health of the economy have increased dramatically in recent days,” Oxford Economics, an independent economic advisory firm, said in its Recession Monitor on Wednesday. “We think this is an overreaction to the steady weakening of upcoming economic data.”
Oxford Economics’ index fell in its July forecast, meaning the likelihood of a recession has increased. However, the firm said, “they are still below the historic recession threshold and still lower than they were a year ago.”
‘No panic’: What to do when the stock market sinks like a stone?
A new report released Tuesday by Zeta Global, an artificial intelligence marketing cloud, also suggests that the job market is slowing but the overall economy appears strong.
Zeta Global monitors the anonymized online behavior of 240 million Americans. Among the trillions of data points analyzed by the company’s AI system may be prospective employees complaining about how difficult it is to find a job.
“A slight decline in labor market sentiment and a slowdown in certain sectors suggest that the continued economic expansion will be uneven,” said David A. Steinberg, CEO of Zeta Global. Despite the decline in labor market sentiment in July, the Zeta Economic Index, the company’s overall indicator of the economy’s strength, continues to rise.
The health of the economy since 2020 based on the Zeta Economic Index
Other indicators show that the US economy remains strong
Zeta Global’s results are consistent with more traditional economic metrics:
◾ Surprises in gross domestic product: The Commerce Department reported in late July that the value of goods and services produced in the United States rose 2.8 percent in the second quarter, double the growth in the first quarter and almost a full percentage point more than forecast.
◾ Consumer confidence is increasing: The consumer confidence index is still well below its ten-year high, but rose several points to 100 in July. “Although consumers are relatively positive about the labor market, they still seem concerned about high prices and interest rates,” wrote Dana M. Peterson, chief economist at the Conference Board.
◾ Service sector is growing: Service industries account for 70 percent of GDP. These industries recorded their 47th growth in 50 months in July, the Institute for Supply Management said on Monday.
Signs of further economic growth in the future
However, most traditional metrics tell us what has happened and do not necessarily predict the future. Consumer confidence gives us a sense of what is on Americans’ minds and what might affect their spending or employment plans.
“Compared to last month, consumers were slightly less pessimistic about the future,” Peterson wrote. “Expectations about future income improved slightly, but consumers generally remained negative about future business and employment conditions.”
Consumers seem ready to stimulate the economy with their spending
Zeta Global’s indexes are based on tracking and analyzing the online activity of consumers, who account for nearly 70 cents of every dollar spent in the U.S. economy. July’s data suggests we’ll be looking to increase our purchases while taking on more debt in the coming weeks.
