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A key part of America’s economy has shifted into reverse | CNN Business

🌈 Abstract

The article discusses the signs of weakness in a vast swath of the US economy, as unemployment rises to its highest point in more than two years. It highlights the slowdown in consumer demand, particularly in the services sector, and the potential impact on service-providing businesses' hiring and job cuts. The article also touches on the factors contributing to the consumer's financial pressures, such as high inflation, interest rates, depleted pandemic savings, and growing debt.

🙋 Q&A

[01] Signs of Weakness in the US Economy

1. What are the key indicators of weakness in the US economy?

  • The Institute for Supply Management's latest monthly survey showed that new orders and overall economic activity in the services sector unexpectedly slipped into contraction territory last month.
  • Consumer spending, which makes up about 70% of the US economy, has already moderated over the past few months.
  • Service-providing businesses have been hiring at a weaker clip, with an average of 168,000 jobs added per month from April through June, much lower than the 241,000 jobs added on average in the prior three months.

2. Which sectors are showing signs of weakness?

  • The services sector, including industries like restaurants, dental clinics, and other service-providing businesses, is showing signs of weakness.
  • Retail trade employment shrank for the first time since November, and temporary help services contracted by 48,900 jobs.
  • Even the healthcare industry, which has been a bright spot, has noticed some softening in demand.

3. What factors are contributing to the slowdown in consumer demand?

  • High inflation, the highest interest rates in more than two decades, depleted pandemic savings, and a growing debt load are putting pressure on the US consumer.
  • Spending at restaurants and bars declined 0.4% in May, and retailers have noticed customers across the income spectrum changing their purchasing behavior.

[02] Potential Impact on Service-Providing Businesses

1. How might the slowdown in consumer demand impact service-providing businesses?

  • The weakness in demand could translate into service-providing businesses hiring at a slower pace and possibly slashing jobs.
  • Businesses need to determine if the slowdown is just a bad month or two, or a more persistent trend, before making decisions about hiring and layoffs.

2. How have service-providing businesses been hiring so far?

  • Service-providing businesses have added 168,000 jobs per month on average from April through June, much lower than the 241,000 jobs added on average in the prior three months.
  • Last year, the average monthly job gain in the services industry was 228,000 jobs.
  • Hiring trends vary within the services sector, with some areas like retail trade and temporary help services contracting, while healthcare has been a bright spot.

3. What are the potential implications for the job market?

  • The loosening of the job market, with unemployment now at 4.1%, the highest level since November 2021, and new applications for jobless benefits on an upward trend, is concerning for the Federal Reserve as it aims to control inflation without causing a significant economic downturn.
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