Is the economy cooling down or getting ready to take off?
Inflation eases, but consumption and industry slow down. The Fed remains cautious and markets hover between patience and uncertainty. What are this week’s data really telling us?
The week ended with markets swinging between optimism over a more flexible monetary policy and concerns about an economy that seems to be losing steam. Inflation gave a small breather, but the slowdown in consumption and weakness in manufacturing raise doubts. Are we heading into a new rate-cutting cycle or is this simply an economy that needs time to regain momentum?
A new direction in U.S. consumer behavior
April data showed that consumer spending—a key component of the U.S. economy—slowed down. The increase was just 0.2%, a sharp drop from March's 0.7%. In contrast, incomes rose 0.8% in the same month, and the savings rate reached 4.9%, its highest level in almost a year. What does this mean? That many people are choosing to save rather than spend. A sign that can be interpreted as caution in the face of economic uncertainty, which could further cool activity if this trend continues.
Manufacturing activity weakens for the third month
The ISM Manufacturing Index, which measures the health of the U.S. industrial sector, fell to 48.5 in May. Any figure below 50 indicates contraction. This is the third consecutive month in this zone, and although some subsectors show resilience, the overall message is clear: industrial activity remains weak. This decline reflects both lower demand and the impact of higher costs—partly due to recent trade tensions. Companies are being more cautious with production and hiring decisions.
The Fed is watching... but doesn't rule out action
The Federal Reserve held interest rates steady at its last meeting, between 4.25% and 4.50%. The message was calm and noncommittal: “wait and see.” However, recent comments by Governor Christopher Waller opened the door to possible rate cuts if economic data continues to weaken—even if inflation doesn't fall as fast as expected. He also mentioned that if current trade policies (like new tariffs) push prices higher, it doesn’t necessarily mean rates would have to go up again. In other words: balancing price control with supporting economic growth is becoming more challenging.
Oil: a fragile balance in the energy market
The oil market saw a week of gains. Brent crude closed near $65 and WTI (West Texas Intermediate) at $63.78, after OPEC announced it would increase production in July by 411,000 barrels per day. This figure was lower than expected, reinforcing the idea of limited supply. Added to this were tensions in Eastern Europe and a weaker dollar—both factors that typically push oil prices higher. For investors, oil remains a source of volatility that affects both stock performance and inflation expectations.
Wall Street: technical pause amid uncertainty
Major stock indexes ended the week with slight losses, reflecting more questions than answers:
S&P 500 (SPY): -0.3%
Dow Jones (DIA): -0.6%
Nasdaq (QQQ): -0.2%
The decline was mainly in growth-sensitive sectors like industrials and discretionary spending. Technology showed more resilience, but not enough to lift the market as in previous weeks.
What to watch in the coming days
This week brings new labor data, including the unemployment rate and job creation in May. Consumer confidence figures and activity in the services sector will also be released. These data points could shape the market’s direction for June—and perhaps influence the Fed’s next decision.
In summary
We are in a moment of transition. Inflation is no longer as urgent, but the economy still lacks clear signs of recovery. For now, the market moves between patience and concern.
And you—how do you interpret these signals?
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Sources: Financial Times, Reuters, Economic times