Is the US economy heading for a recession after the stock market crash?

In recent days, global stock markets have been falling.

Trading screens in the US, Asia and, to some extent, Europe are awash with flashing red numbers heading south.

The sudden turnaround comes as fears grow about a slowdown in the U.S. economy, the world's largest.

The main reason for this fear, experts say, is that US employment data for July, released on Friday, was much worse than expected.

However, for some, talk of an economic slowdown – or even a (rumoured) recession – is a little premature.

So what do the official figures tell us? As always in economics, there is good news and bad news.

The bad news begins. U.S. employers added 114,000 jobs in July, well below the 175,000 new positions expected.

The unemployment rate also rose to 4.3 percent, a nearly three-year high, triggering what is known as the “Sahm ​​rule.”

Named after American economist Claudia Sahm, the rule states that if the three-month average unemployment rate is half a percentage point higher than the lowest level in the previous 12 months, then the country is in the early stages of a recession.

In this case, the US unemployment rate rose in July, with the three-month average at 4.1%, compared to last year's low of 3.5%.

These concerns are reinforced by the fact that the US Federal Reserve voted last week against cutting interest rates.

Other central banks in developed economies, including the Bank of England and the European Central Bank, have recently cut interest rates.

The Fed held its borrowing costs steady, but its chairman, Jerome Powell, signaled that a September cut was on the table.

However, this has given rise to speculation that the Fed may have waited too long to act.

Lower interest rates mean it is cheaper to borrow money, which should, in theory, stimulate the economy.

If the jobs numbers suggest the economy is already tipping over, then there is concern that the Fed is too late.

Added to this are technology companies and their stock prices, which have been on a long-term upward trajectory, fueled in part by optimism about artificial intelligence (AI).

Last week, semiconductor giant Intel announced it would cut 15,000 jobs. At the same time, market rumors suggested that rival Nvidia might be forced to delay the release of its new artificial intelligence chip.

The Nasdaq, the tech-heavy US index, has been in a real bloodbath. After peaking just a few weeks ago, it plunged 10% on Friday.

This has helped to increase the fear factor in the markets and this is where the danger could lie.

If the stock market panic persists and stocks continue to fall, the Fed could potentially step in before its next meeting in September and cut interest rates.

This could happen, according to Neil Shearing, chief economist at Capital Economics, if there is “a market dislocation that deepens and begins to threaten systemically important institutions and/or broader financial stability.”

Now let's move on to the good (and average) news.

“We are not in a recession right now,” according to Ms. Sahm herself, the inventor of the rule.

She told CNBC on Monday that “the momentum is moving in that direction.”

But she added: “A recession is not inevitable and there is substantial room to cut interest rates.”

Others are ambiguous about employment data.

“Although the report is bad, it is not that bad,” Mr Shearing said.

“Hurricane Beryl likely contributed to the weak July jobs numbers. Other data painted a picture of a labor market cooling, but not collapsing,” he said.

He added that there did not appear to be “an increase in layoffs” while a “modest” drop in average weekly hours worked in July “does not scream 'recession'”.

For Simon French, chief economist and research director at Panmure Liberum, after digesting the US jobs data, it's time to take a moment.

“Stepping back, have we suddenly reassessed the health of the world’s largest economy? No, and we shouldn’t.”

But he added: “This is another data point at a time when liquidity is low and you have a lot to worry about.”

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