World Insights: Latest U.S. job report exacerbates concerns over recession
The strained job market is partly attributed to the Federal Reserve’s aggressive interest rate policies, with high borrowing costs stifling corporate investments and job creation, said a USA Today report.
WASHINGTON, Sept. 15 (Xinhua) — As a recent U.S. job report shows expanded layoffs and shrinking job creation, observers have expressed broader concerns over the U.S. economic outlook as negative effects of an aggressive monetary policy continue to emerge.
Layoffs rose to 1.76 million in July, the most since March 2023, according to the U.S. Labor Department.
Leading accounting firm PwC announced plans to shed approximately 1,800 jobs in the United States this October, marking its first U.S. layoffs since 2009. Similarly, Intel Corporation, grappling with declining demand, unveiled its largest-ever layoff plan, reducing nearly 15,000, or 15 percent of its staff.
The strained job market is partly attributed to the Federal Reserve’s aggressive interest rate policies, with high borrowing costs stifling corporate investments and job creation, said a USA Today report. Coupled with growing fears of an impending recession, many companies are awaiting greater policy clarity, particularly as the U.S. presidential election is around the corner.
The retail sector has been particularly hard hit. The sector has seen a wave of bankruptcies since the beginning of last year, including such household names as Bed Bath & Beyond, Party City, and Serta Simmons. UBS said in April 2023 that this trend may result in the permanent closure of over 50,000 U.S. retail stores in the following five years.
S&P Global Market Intelligence reported that 63 public and private companies filed for bankruptcy in August, three of which had liabilities exceeding 1 billion U.S. dollars. This brings the total number of U.S. bankruptcies in the first eight months of 2024 to 452, the highest level since the peak of the COVID-19 crisis in 2020.
Michael Hunter, vice president of bankruptcy information services platform Epiq AACER, said that with high interest rates, growing debt levels and increasing delinquency rates in various domains, they expect a “continued increase in new (bankruptcy) filing volumes this fall and into the winter of 2024.”
Besides retailers, a number of tech firms have also announced layoffs since last year. Among them were corporate heavyweights such as Google, Amazon, Microsoft, IBM, Spotify and Tesla.
A tally from the Crunchbase News shows that more than 191,000 workers at U.S.-based tech firms were laid off in 2023, and job cuts have continued into this year.
Consumers are becoming more cautious about spending, as the job market has been slowing and U.S. households’ pandemic excess savings are running out. The weakening of consumer spending has been fueling worries about a potential U.S. economic recession.
Media reports noted that reduced consumer spending power, experiencing the hit from rising unemployment, will create a vicious cycle of job cuts. Scott Paul, president of the Alliance for American Manufacturing, said the “draconian interest rates” have harmed business investments for capital equipment and dampened purchases of vehicles and houses.
Stocks also tumbled on concerns over the slowing U.S. economy. A broad market sell-off of AI stocks in early September, after the release of tepid economic data, led to a decline in the market value of technology stocks.
Notably, shares of AI giant Nvidia plunged by 9.5 percent on Sept. 3 and lost 279 million in market capitalization, registering the biggest ever single-day loss of market value for a U.S. stock. The Nasdaq Composite, an index with a tech-heavy focus, dropped more than 3 percent on the same day.
J.P. Morgan Research has recently raised the probability of a U.S. recession starting before the end of 2024 to 35 percent from 25 percent in its earlier forecast, and sees a 45-percent chance of recession by the end of 2025.
Market expectations are high for a Fed rate cut at its upcoming meeting later this month. Peter Berezin, chief global strategist at BCA Research, wrote in Financial Times that investors need to prepare for a U.S. recession.
“The economy succumbed to recession just months after the central bank started lowering rates in January 2001 and September 2007,” he wrote.
The Federal Reserve “is unlikely to save the day” as economic conditions deteriorate, he said.
