U.S. Economy Slows—Is a Soft Landing Still Likely?

Key Takeaways

• U.S. macro data points to slowing growth 
• Corporate earnings remain resilient 
• Bank of England cuts rates after tight vote

The U.S. economy is slowing down but don't expect a hard landing.

In the latest edition of Market Week in Review, London-based strategist Pierre Dongo-Soria unpacks fresh macro signals from the U.S. economy, reviews key second-quarter earnings results, and breaks down the Bank of England’s (BoE) closely contested decision to cut rates.

Recent data has reinforced the narrative of a slowdown in the U.S. economy, but a soft landing remains the most likely scenario.

Dongo-Soria explains that this week’s ISM Services Purchasing Managers’ Index (PMI) unexpectedly fell to 50.1 from 50.8, narrowly in expansion territory, while the prices-paid component edged higher—keeping inflation worries on the radar.

He adds that jobless claims rose more than expected, hitting a three-year high, which adds to the growing sense of softness in the U.S. labor market.

“The broader picture is one of slowing job growth, softening activity, and lingering inflation risks. That said, our outlook remains one of a muddle-through environment. The economy is slowing, but not recessionary,” he says.

He adds that with the Consumer Price Index (CPI) due next week, markets are watching closely to assess the timing and extent of possible Federal Reserve rate cuts later this year.

Despite macro softness, U.S. stocks posted gains this week, underpinned by continued strength in corporate earnings.

“We’ve seen solid results across the board, and analysts have been revising up their earnings expectations. Year-over-year earnings growth for Q2 is on track to deliver over 10% growth,” Dongo-Soria highlights. 

Still, he explains that much of the momentum continues to be driven by large-cap tech stocks including Apple, Microsoft, and Meta. Therefore, questions remain on how the rest of earnings season will play out and whether the fundamentals in small caps can show the same resilience.  

Another key development this week was the BoE cutting its policy rate by 0.25%, bringing the base rate down to 4%. The decision was razor-thin, passing only after an unprecedented second round of voting, with a final 5–4 split.

“The close call reflects the tricky spot the BoE is in. Trying to balance weakening growth with inflation still above target,” says Dongo-Soria.

Further, he explains that markets had priced in the cut, but the narrow margin casts doubt over future policy moves. In response, UK gilt yields and sterling have both moved higher.

Looking ahead, Dongo-Soria sees the upcoming release of fresh inflation and wage data as "make-or-break” for the BoE’s next rate decision. 

Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice.