Economic data released last week revealed concerning warning signals, validating the economic concerns that corporate executives and consumers have harbored throughout the year. Friday's non-farm employment report indicated that the current state of the US labor market is significantly worse than previously reported. Consumer spending adjusted for inflation, which accounts for approximately two-thirds of US economic activity, declined during the first half of this year, while the Federal Reserve's preferred inflation gauge rebounded in June.

Sarah House, senior economist at Wells Fargo, stated: "The US economy is 'struggling to maintain its stability.' Businesses and consumers have been confronting a series of dramatic policy changes, escalating inflation, and monetary policy that remains somewhat restrictive. The economic stagnation concerns triggered by this combination are now unfortunately beginning to materialize."

Friday's employment data shocked markets, including revisions to previous data that downwardly adjusted May and June job figures by nearly 260,000 positions, overturning previous assessments that the labor market remained robust heading into summer. Average job growth over the past three months was merely 35,000 positions, marking the weakest level since the pandemic. This report from the Bureau of Labor Statistics called into question the Federal Reserve's decision to maintain interest rates unchanged just days earlier.

Later on Friday, another surprising development emerged: Fed Governor Kugler announced her resignation, providing an earlier-than-expected opportunity for the incoming administration to appoint a policymaker aligned with more aggressive rate-cutting preferences.

**Corporate and Consumer Impact**

Many US businesses have suspended investment and hiring as they attempt to understand the implications of potential policy changes, particularly regarding tariff policies. The real estate market just experienced its worst spring selling season in 13 years, while consumers have reduced spending on non-essential items due to mounting debt burdens.

Gregory Daco, chief economist at EY-Parthenon, observed: "As prices rise, businesses and consumers are finding it increasingly difficult to consume and invest, and this struggle will likely persist."

Despite these challenges, the US economy is expected to continue growing steadily, albeit at a slower pace than in recent years. According to the latest surveys, forecasters anticipate 1.5% economic growth this year, rising to 1.7% by 2026.

Companies ranging from Chipotle Mexican Grill (CMG.US) to Procter & Gamble (PG.US) have noted that economic uncertainty is dampening consumer demand. Procter & Gamble CFO Andre Schulten remarked during the company's quarterly earnings call: "We're seeing consumer trends consistently slowing - not dramatically, but we're observing a clear deceleration in the US. The volatility consumers are experiencing may not be entirely based on their current actual situation, but rather on considerations about future expectations."

Meanwhile, June data showed price increases for frequently imported goods such as furniture and appliances, suggesting that some companies are beginning to pass higher tariff costs onto consumers. Even with potential trade agreements with major trading partners, recently announced tariff measures would further increase average tax rates on US imports. Many economists expect import tariffs to drive up prices in the coming months.

Federal Reserve officials, tasked with the dual mandate of curbing inflation and maintaining low unemployment, now face increased pressure to lower interest rates before the economy cools too rapidly. Fed Chair Powell noted during Wednesday's press conference that the labor market faces downside risks while still describing it as "solid." He also addressed the consumer spending slowdown, stating: "Consumer spending has been very strong over the past few years. Previous forecasters, including ourselves, have repeatedly predicted gradual spending deceleration. Perhaps this is finally occurring."

The real estate market continues to drag on economic growth due to elevated home prices and rising borrowing costs. In June, total spending on housing construction and non-residential projects fell 2.9% year-over-year, representing one of the most severe annual declines since early 2019.

**Massive Non-Farm Revisions**

While revisions to government data such as employment figures are routine and typically don't attract significant attention, Friday's revision was exceptionally large. The adjustment showed that May and June job additions were 258,000 fewer than previously reported, transforming the employment market outlook from robust growth to near stagnation.

US 2-year Treasury yields, closely tied to Fed short-term rates, surged following the data release, while the S&P 500 index declined sharply. Equifax CEO Mark Begor stated during a July 22 earnings call: "When businesses feel uncertain about the future, they cut spending. The first area they typically reduce is hiring."

Despite hiring slowdowns, most companies are not conducting layoffs. Although unemployment rose to 4.2% in July, it remains at relatively low levels. However, these data highlight the increasingly challenging situation facing unemployed individuals.

The decline in US non-farm employment and rising unemployment would significantly suppress consumer spending, primarily because labor market weakness directly undermines household income. Lower-income groups dependent on wages are particularly forced to reduce non-essential consumption such as dining and entertainment spending. Simultaneously, declining consumer confidence further dampens spending intentions, creating a negative feedback loop of "reduced income - spending contraction - deteriorating corporate profits - accelerated layoffs."