Higher profits and productivity protect the economy

The world’s largest economy has a great influence on the development of the European one. If a recession occurs in the American economy, which is the largest trading partner of the European Union (EU), economic development in Europe will also be complicated. The value of the stock portfolio of not only American but also European investors also decreases. That is why institutions and analysts in Slovakia also closely monitor reports on economic data from the USA.

Don’t overlook

The growth trend in the stock market is stronger, the fear of a bubble is disappearing

A key indicator of the health of the economy in the US is the labor market, from which the strength of the domestic consumer, the biggest driver of the entire economy, depends. The latest April data showed a significantly lower number of jobs created compared to expectations.

Analysts’ expectations were at the level of 240,000 jobs, the reality reached the level of 175,000. The unemployment rate increased to 3.9 percent, although it was expected to remain at the level of 3.8 percent.

These are still excellent numbers, but there is a shadow of doubt. So far, the labor market has surprised positively, now it has delivered the first negative surprise since November 2023 and the fewest jobs created since February 2021.

The question is: Is the long-awaited slowdown of the economy due to high interest rates coming, is there a threat of stagflation (a combination of weak growth and high inflation) or even a recession?

Descent from high levels

First of all, it is necessary to repeat that the slowdown in the creation of jobs is something different from their decrease. In fact, a job growth rate of 175,000 could be considered a solid result, the historical average since 1939 is 125,000 per month. The past two years have seen above-average gains as millions of jobs lost since the pandemic have been restored.

Cautious optimism supports the development of profits of American companies. Companies included in the S&P 500 index should report a 5.2 percent year-on-year earnings growth rate for the first quarter of 2024, and growth is expected to accelerate in the following quarters.

Of course, the reality may be different, but if the trend can be maintained, even a weaker growth rate compared to expectations will be positive news for the economy (this may not apply to stock markets).