Evidence is stacking up that the U.S. economy has slowed, led by the formerly red-hot services sector. 

Yet overall activity levels remain healthy, and some cooling is welcome news to investors because it opens the door back up to possible rate cuts by the Federal Reserve.

The most obvious indicator was Friday’s employment report, which showed the economy added 175,000 jobs in April, down significantly from 315,000 in March. Particularly notable was the shift to just 5,000 jobs being added in the leisure and hospitality sector compared with 53,000 in March. 

This is consistent with earnings reports over the past week from food-services providers including Starbucks and McDonald’s, which both cited growing caution among consumers. Even Kraft Heinz said out-of-home venues such as restaurants are buying less from it. 

“The consumer is certainly being very discriminating in how they spend their dollar. And the inflation that has occurred over the last couple of years in the U.S., I think, has certainly created that environment,” McDonald’s Chief Executive Christopher Kempczinski told analysts on a conference call on Tuesday. Starbucks, for its part, reported a 3% decline in North American comparable-store sales in the first quarter which, along with weakness in China, prompted a 15.9% plunge in its stock price.

Also on Friday, a monthly survey by the Institute for Supply Management showed services-sector activity dipping into contractionary territory in April for the first time in 15 months. “The composition of the report was weak, as the employment, new orders, and business activity components all declined,” Goldman Sachs economists said in a note. 

Of course, it wasn’t all doom and gloom. True, the unemployment rate ticked up to 3.9% in April from 3.8% the prior month. But, as the Bureau of Labor Statistics noted, this indicator has been in a narrow range of between 3.7% and 3.9% since August of last year. Economists at Bank of America said they see evidence that the great “catch up” in services-sector employment following the pandemic is finally ending. “In our view, this is not an outright negative sign for the economy,” they added. 

One very welcome sign from the Fed’s point of view is the continued slowdown in wage growth, with average hourly earnings rising just 3.9% from a year earlier in April, compared with 4.1% in March and 4.3% in February. This suggests pricing pressures could keep subsiding, despite the stubbornly high inflation reports of recent months. 

Indeed, Friday’s soft jobs data was enough to get investors thinking about rate cuts again. Stocks rose and bond yields fell on the data, with the S&P 500 gaining 1.3% and yields on benchmark 10-year Treasurys declining by 0.07 percentage point. A move at the Fed’s next meeting in June still seems to be off the table. But the likelihood of a cut by September as implied by the Fed Funds futures market rose to 67.1% late Friday from 61.6% a day earlier, according to CME Group.

If the economic data cooperates between now and then, the possibility of a sneaky July cut could keep creeping higher. Right now, markets put that at just a 36.6% chance, but it is Goldman Sachs’s base case.

A little summer slowdown could be just what this economy needs.