What's going on?

Thursday�s fresh data showed the stars and stripes staggering, with the US economy falling short of expectations last quarter.

What does this mean?

The US has been weathering interest rate hikes and red-hot inflation quite well in recent quarters, but it seems that the economy�s finally showing some cracks. Sure, a key measure of consumer spending on goods and services picked up nicely, and exports did their part too. But not everything was fine and dandy: business investment in equipment saw the largest drop since the pandemic, inventories dragged on growth, and the housing market kept on struggling. Add that all up, and the economy slowed to an annualized growth rate of 1.1% � well below the previous quarter�s 2.6% and far short of the 2% folk expected.

Why should I care?

The bigger picture: Tip of the iceberg.
This might not look like anything more than a slowdown, but the situation could be worse than it seems. Remember, this data looks back in time � and consumer spending, which propped up these numbers, has been on the slide recently. That�s got economists predicting that the economy will pretty much stall this quarter, with just 0.2% growth. And the outlook doesn�t brighten from there: further slowdowns, tightening credit conditions, and another expected interest rate hike next week have many economists bracing for a full-blown recession.

For markets: Easy does it.
If a recession does come knocking, the stock market might be in for a pretty unpleasant surprise. It’s been standing strong so far this year, with anticipated rate cuts fueling visions of an ideal �soft-landing� scenario. But those dreams could easily be off the mark � and as soon as that becomes clear, markets might nosedive. That�s why it could be wise to keep some cash on the sidelines, instead of going all in right now.