What a Difference a Data Point (or Two) Makes

Chief Economist Eugenio J. Alemán discusses current economic conditions.

We try not to react to just one data point because, as we have always said, “a data point doesn’t a trend make.” Furthermore, we don’t know if this is just a one-time event or if it is the start of something more. But we have been expecting a slowdown in economic activity for a while, and April’s 175,000 nonfarm payrolls is the first sign that maybe, just maybe, our expectation for a slowdown in economic activity is finally here.

If you look at our forecast, we are still expecting a slowdown in economic activity, if not for any reason other than the famous “long and variable lags of monetary policy” which, for this cycle, have been really, really, long!

Still, the 167,000 jobs created by the private sector are very strong compared to a historic average of employment growth in the U.S. economy. Furthermore, most of the jobs, 95,000, were in the private education and health services sector, but mostly in the health services sector, which typically does well in a growing as well as in a weak economic environment.

But today we had a potentially second not-so-good number, the ISM Services Index, which went into contraction territory for the first time since December of 2022. Thus, the ISM Services joined the ISM Manufacturing Index in April with both in contraction for the first time in several years, which could create problems for the economy, for firms, and for the Federal Reserve (Fed).