Our bend-don't-break economy is reaching its limit
After a year of resiliency in the face of high interest rates, the cracks are showing in the US economy.
Getty Images; Jenny Chang-Rodriguez/BI
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In today's big story, interest-rate cuts are almost certainly coming, but the relief won't be felt immediately. It begs the question: Are the chances of a soft landing doomed?
What's on deck:
- Markets: Hedge funds' July report cards are in, including an update from the new kid on the block.
- Tech: One man's apprehensive journey to push the boundaries of what AI is capable of.
- Business: Life isn't perfect, so maybe it's time we all embrace being average.
But first, oh boy.
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The big story
Crash landing
Kevin Dietsch/Getty, Tyler Le/BI
Our bend-don't-break economy might finally have reached its limit.
After a year of resiliency in the face of high interest rates, the cracks are showing in the US economy.
July unemployment data released Friday came in unexpectedly high. The US added 61,000 fewer jobs than expected, and the unemployment rate rose to 4.3%, its highest level since October 2021.
Investors were already on edge from a rise in jobless claims and weak manufacturing data on Thursday, so it wasn't long before the market started melting down. Dismal tech earnings certainly didn't help.
There is a silver lining to the market's pain: Rate cuts are almost guaranteed for September. In recent days, the question has shifted from "if" to "how much," as some speculate the Fed could make a half-point cut instead of the standard quarter-point reduction.
But it's not a silver bullet, and the rate cut's effect will take time to make its way through the economy. Relief will eventually be felt in the job market, but it won't be immediate.
That means those looking for jobs, or stuck in ones they're unhappy with, will have to wait a bit longer.
Getty Images; Chelsea Jia Feng/BI
In the meantime, things could get worse. Like, a lot worse.
A recession indicator with an almost spotless record went off on Friday. The Sahm Rule is triggered when unemployment's three-month moving average moves 50 basis points above its 12-month low.
Still, Claudia Sahm, the former Fed official who created the rule, told Business Insider's Madison Hoff she doesn't believe we're in a recession, but acknowledged that "things are slowing down."
"It definitely should be a wake up call to policymakers," she added.
The slowdown is evident across industries.
Amazon warned last week about the erosion of consumers' spending power, previously a key factor in the economy's resiliency. McDonald's has experienced something similar, acknowledging last week that its prices are too high for some customers. And Big Tech keeps investing in AI despite no one knowing if it will pay off.
The result is the economy's chances of the long-discussed soft landing potentially being ruined.
When things go bad, people tend to point fingers. And plenty of economists are looking in the Fed's direction.
They feel the central bank didn't act fast enough. Central banks in Switzerland, Canada, and the UK have already started easing their policies.
Remember that these are some of the same experts who have waffled on the future of the economy for more than a year, predicting everything from a full-blown recession to a Goldilocks situation.
But if things do turn sour, it's a fitting bookend to what has been a difficult few years for the Fed. Its inaction in raising rates caused inflation to spike in the first place, and its hesitancy to provide relief could send us into a recession.
News brief
Your Monday headline catchup
A quick recap of the top news from over the weekend:
- Global stock markets are sliding as Japan suffers biggest fall since 1987.
- Trump says he has 'no choice' but to support electric vehicles because Elon Musk 'endorsed me very strongly.'
- Frontier Airlines pilot arrested and escorted off aircraft by police in Houston.
- The new Miss USA is a US Army officer from Michigan.
- Tesla, Charles Schwab — and now Chevron. Texas is having a moment as companies leave California.
3 things in markets
Jared Siskin/Getty Images for Madison Square Park Conservancy; iStock; BI
- Bobby Jain's hedge fund wraps its first month slightly down. The high-profile Jain Global, which started trading on July 1 with $5.3 billion, ended the month down roughly 0.65%, according to people with knowledge of the firm's results. Bigger funds like Citadel and Millennium eked out small gains. Check out how some of the Street's biggest funds did.
- This Gen Xer is on FIRE. Jordan Grumet felt burnt out at his job as a primary-care doctor when he discovered the "financially independent, retire early" movement. He shared the FIRE strategies he used to retire at 45 and grow his savings to over $6 million.
- From Wall Street to Paris. Justin Best, an investment banking analyst at Union Square Advisors, just won a gold medal in rowing at the Summer Olympics. He explained how he balanced 100-hour workweeks and training for the biggest games in the world.
3 things in tech
Brian Stauffer for BI
- The Oppenheimer of AI. Michal Kosinski is a pioneer at the intersection of AI and facial recognition. But he's inheriting a troubled science that could easily be weaponized against certain groups of people. Kosinski is warning the world about the risks of his tech — all while he's building it.
- Nvidia is on an acquisition spree. The firm has made four acquisition deals so far this year, matching its 2020 total. But thanks in part to some regulatory scrutiny, a few of this year's deals have yet to close. Experts said while AI M&A is slowing down, it's showing no signs of stopping.
- Meta's AI kept impersonating a reporter — and gave his real phone number out to strangers. Rob Price kept getting added to random Spanish-language WhatsApp chats because of a quirk of Meta's AI. His investigation led to more questions about the "black box" nature of generative AI.
3 things in business
sompong liabsanthia/Getty, Seng kui Lim/Getty, Tyler Le/BI
- Life-maxxing is making you miserable. In a world that teaches you to always be optimizing, it's hard to resist striving for perfection. But a lot of us could be happier if we quit the rat race altogether and focused on being good enough rather than being the best.
- Corporate America has an old people problem. Like the US government, the corporate world is dealing with a gerontocracy crisis: Aging business leaders refuse to step aside, putting their businesses at risk. Corporate America is scrambling to figure out how CEOs can take a page out of President Joe Biden's book and step aside.
- "Sweaty startups" break a sweat. These blue-collar businesses, often in unglamorous or laborious fields like septic services or pest control, used to be a moneymaking haven for entrepreneurs. Now competition is rising, and some startup owners say it's getting harder to turn a profit.
In other news
- Google, Netflix, and OpenAI execs are hosting a fundraiser for Kamala Harris.
- Even Nvidia can't escape the government's crackdown on Big Tech.
- A future-of-work expert explains why some companies are willing to risk losing talent to get workers back to the office.
- Assigned desks are now a work perk — and Gen Zers are making themselves right at home.
- The New York Times and other top news sites block OpenAI's new SearchGPT web crawling bot.
What's happening today
- Fortune 500 ranking of world's largest corporations released.
- First batch of Chinese G60 Starlink satellites reportedly launches today. The endeavor is in direct competition with the US's Elon Musk-backed Starlink.
The Insider Today team: Dan DeFrancesco, deputy editor and anchor, in New York. Jordan Parker Erb, editor, in New York. Hallam Bullock, senior editor, in London. Annie Smith, associate producer, in London. Amanda Yen, fellow, in New York.