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Equities kicked off Friday on a quiet note, with little movement as the latest U.S. labor market report unveiled a softer-than-anticipated addition of 142,000 jobs for August. The data only adds to growing recession concerns, layering on top of several earlier signs hinting at an economic slowdown. Meanwhile, the 10-2 year Treasury yield spread has begun to steepen, often seen as a warning signal for rough economic times ahead.
Recession Worries Mount as Treasury Yield Curve Shifts and Job Growth Slows
As the bell rang on Friday morning at Wall Street, the Russell 2000 and Nasdaq slipped, while the Dow and S&P 500 stayed flat. By 10:30 a.m. EDT, all four benchmark indexes were in the red. The jobs report, released earlier that day, revealed that 142,000 jobs were added in August, falling short of the predicted 165,000. Sonu Varghese, a global macro strategist at Carson Group, told CNBC that “the labor market is clearly softening, and the Fed needs to step in to cut off tail risks.”
Varghese added:
The report seals the deal for a September rate cut, but the big question really is whether the Fed goes big (by cutting 50 bps) to get in front of rising risks.
In a note to Bitcoin.com News, BOK Financial‘s chief investment strategist, Steve Wyett, commented that the morning’s employment report was a mixed bag, but not enough to change their forecast. Wyett added that they still anticipate a 25-basis point cut during the Sept. Federal Open Market Committee (FOMC) meeting.
“That’s not to say a case for a 50-basis point move cannot be made, after all, NFP missed to the downside and there were revisions lower to the previous two month’s reports,” Wyett explained. Moreover, market’s mood is equally jittery over the steepening yield curve and the triggering of the Sahm Rule, which kicks in when the three-month average U-3 rate (U.S. civilian unemployment rate) rises by 0.5% above its rock-bottom mean from the past year.
David Russell, global head of market strategy at Tradestation, told Bitcoin.com News on Friday that although the jobs report was uninspired, it wasn’t soft enough to suggest a recession is looming. “The data was soft enough to make the Fed more dovish, but not weak enough to confirm recession fears,” Russell remarked. The Tradestation executive added:
The job market is bending, but it’s not breaking. We seem to remain on track for a soft landing. The bears aren’t getting what they wanted.
Alongside the jobs report and other signals, the long-standing inverted 10-2 year Treasury yield spread is inching toward a positive yield after more than two years of inversion. Historically, an inverted yield curve has been a strong indicator of upcoming economic downturns, with several key moments in history where a prolonged inversion followed by a steepening curve came just before major recessions and depressions.
A video shared by Game of Trades highlights this pattern before the Great Depression of the 1930s. Another well-known case was ahead of the Great Recession from 2007 to 2009. The early 1980s “double-dip” recession also followed the same path: an inverted curve that later steepened. After equities slipped by the mid-morning session at 10:30 a.m., the price of bitcoin slipped to an intraday low of $53,810 on Bitstamp.
As markets continue to digest mixed economic signals, investors are left weighing the potential impact of the shifting yield curve and labor data. While historical patterns suggest caution, there’s no certainty in forecasting future downturns. The path ahead remains uncertain, but the gradual shift in economic indicators has heightened anticipation of what may come next for the U.S. economy.
What do you think about the recession signals and latest U.S. jobs report? Share your thoughts and opinions about this subject in the comments section below.