Investment bank Goldman Sachs brought down the odds of a U.S. recession after recent data showed no signs of such an impending economic transition.
“Continued expansion would make the U.S. look more similar to other G10 economies, where the Sahm rule has held less than 70 percent of the time.”
However, Claudia Sahm, the inventor of the Sahm Rule, had warned against viewing the current recession signal as a valid one, pointing out that the U.S. labor market has seen “unusual shifts” which could have distorted the indicator’s accuracy.
Latest data released on Thursday showed a drop in the number of Americans filing for unemployment benefits from the previous week. Meanwhile, retail data showed sales rose by the most in 1 1/2 years last month.
If the jobs report for August turns out to be “reasonably good,” Hatzius said he could cut down U.S. recession probability back to 15 percent.
“Important elements of our growth forecast are being challenged. U.S. news hints at a sharper-than-expected weakening in labor demand and early signs of labor shedding,” said Bruce Kasman, chief global economist at J.P. Morgan.
US Recession Risks
Concerns about an American recession come as the U.S. Federal Reserve’s Beige Book said last month that the economy is showing signs of softening, including pullbacks in consumer spending and a weakening in the labor market.Of the 12 districts tracked by the Fed, five reported “flat or declining activity,” which was three more than prior reporting.
“Expectations for the future of the economy were for slower growth over the next six months due to uncertainty around the upcoming election, domestic policy, geopolitical conflict, and inflation,” the Beige Book stated.
“Past contractions led to 3 RECESSIONS and the GREAT DEPRESSION. I anticipate the US will enter a recession late 2024 or in early 2025,” he wrote.
Researchers said the indicator gets triggered earlier than the Sahm Rule and also has a “better historical track record,” saying it has perfectly identified all recessions since 1930.
“With July 2024 data, our indicator is at 0.5pp, so the probability that the US economy is now in recession is 40 percent. In fact, the recession may have started as early as March 2024,” the paper said.
Meanwhile, business executives seem to be more confident in the strength of the American economy.