"US Shaky Economic Indicators... Focus on Change in Nature of September Rate Cut"

Hi Investment & Securities noted that the June U.S. economic indicators suggest a possibility of slowing U.S. economic growth, highlighting that the nature of the Federal Reserve's rate cut in September could shift to an 'insurance cut.'

Researcher Park Sang-hyun stated in a report on the 4th, "Major U.S. economic sectors have started showing some unusual signs," adding, "This is because the June key economic indicators significantly missed market expectations, indicating a sharp weakening of U.S. growth momentum."

In fact, the June ISM Manufacturing Index came in at 48.5, falling short of market expectations and showing contraction for the third consecutive month. The ISM Services Index, which represents the service sector that has driven the U.S. economy, also recorded a significant decline.

He further noted, "As gaps begin to appear in the previously robust labor market, negative effects have started to impact the consumption cycle," pointing out that "amid continued weakening consumer sentiment, June automobile sales were significantly sluggish."

He also said, "Although some economic indicators are weak, the likelihood of the U.S. economy entering a recession immediately is low. However, if the current trend in indicators continues, the possibility of renewed recession debates in the second half of the year is clearly increasing."

He explained that the nature of the Federal Reserve's rate cut, expected in September, might be an insurance cut rather than a disinflation cut.

Researcher Park emphasized, "The increased possibility of a Fed rate cut in September due to slowing inflation and economic indicators is positive, and calming the rapidly rising rates driven by former President Trump's election expectations is also positive for now. However, it is important to note that risks of a sharp weakening in U.S. economic momentum, centered on labor market slowdown, are becoming somewhat visible."

He added, "If the Fed's rate cut increasingly takes on the character of an insurance cut rather than a disinflation cut, the stock market may not necessarily welcome the rate cut."