Disappointing economic indicators are taking hold as markets ready for an expected rate cut this July, and one prominent economist and educator warned there’s more of a slowdown than previously forecasted.
"So far, we've had disappointing retail sales. We've had disappointing PMI manufacturing numbers. The ISM numbers were disappointing. [Tuesday's] job vacancies were considerably below expectations," Mohamed El-Erian, president of Queens' College at Cambridge University, said on "The Claman Countdown." "Citi has this ‘index of surprises,’ and we've had nothing but negative surprises."
"And all that is saying to us is that the economy is slowing much faster than most people expected, including the Fed," he continued.
According to the ADP National Employment Report released Wednesday morning, hiring by U.S. companies slowed more than expected in May, pointing to a labor market that is continuing to cool in the face of higher interest rates.
AMERICANS WITH ADJUSTABLE MORTGAGES COULD SOON SEE THEIR PAYMENTS SKYROCKET
Companies added 152,000 jobs last month, below both the 175,000 increase predicted by LSEG economists and the downwardly revised April gain of 188,000. It marked the worst month for job creation since January.
Data released on Tuesday showed U.S. job openings sinking in April to the lowest level in more than three years, marking another sign that the labor market is beginning to weaken in the face of higher interest rates and stubborn inflation.
The Federal Reserve raised interest rates 11 times beginning in March 2022 in an effort to rein in inflation and cool the labor market. Policymakers have suggested that fast wage growth – the product of a strong labor market – was a contributing factor to the inflation crisis that ravaged millions of Americans' pocketbooks over the past few years.
"That is where the policy mistake comes in. Monetary policy acts with a lag," El-Erian said. "So you are really targeting the economy of tomorrow. But if you do that based on yesterday's data, you are likely to get it wrong."
"When they decided inflation was transitory, when people, including us, were telling them, ‘It's not transitory, pay attention,’ they were afraid of making a major strategic call," the economist added. "And I think that that is where we have the risk right now."
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El-Erian said he believes there’s still a 35% chance that the U.S. economy will enter a recession.
"We entered 2023 with people saying a 100% probability of recession, and the U.S. economy surprises on the upside," he pointed out. "Unfortunately, we entered this year a little bit too rosy, and now the economy is slowing."
FOX Business’ Megan Henney contributed to this report.
