Is the US headed for a recession? Here's what the experts say.

For much of 2024, the Federal Reserve appeared to be successfully steering a difficult course, mitigating inflation to its highest level in four decades while keeping the U.S. economy from sliding into recession. But recent disappointing economic data has some economists warning that the country is not yet out of the danger zone.

One economic indicator that has raised fears of a hard landing is the disappointing jobs report released on August 2, which showed the unemployment rate rose to 4.3% in July from 4.1% the previous month. That increase triggered the Sahm rule, which indicates that the three-month moving average of the national unemployment rate rises 0.5 percentage points above its lowest level in the past 12 months.

With the Sahm rule consistently signaling the onset of a recession, Friday’s data fueled a three-day stock market rout that led to the S&P 500’s worst trading day in nearly two years. Economists, meanwhile, say that while the Sahm rule doesn’t appear to be accurate this time around in predicting a recession, they see growing risks that the economy could slide into a contraction.

“It’s not that macroeconomic fundamentals are much weaker,” Gregory Daco, chief economist at EY-Parthenon, told CBS MoneyWatch. “But given the tightening of financial conditions, the likelihood of a recession has increased.”

Other economists are also raising the possibility of a recession. Goldman Sachs on August 7 raised its 12-month recession risk to 25% from 15%. Goldman cited the rising unemployment rate, noting that “even such a modest increase has been a reliable indicator of recession in the history of the postwar U.S. business cycle.”

What is the Sahm Rule?

The Sahm rule was created by Claudia Sahm, chief economist at New Century Advisors and a former Federal Reserve economist, who first described the indicator in a 2019 book published by the Brookings Institution's Hamilton Project.

In a 2022 blog post, Sahm wrote that the idea was to create a policy tool that would help the government determine when to send stimulus checks, but she noted wryly that the rule took on a life of its own, attracting the attention of prominent economists like Larry Summers and the media.

“I created a monster,” she wrote in the 2022 post, adding that the rule “is a historical pattern, not a rule of nature.”

Since the Sahm rule was triggered last week, she has underscored that point, writing in Bloomberg News on Wednesday that she does not believe the U.S. is in a recession. Her rule, she added, is just one of many indicators that have been “disrupted” by the unusual economic situation of the past four years.

The Sahm rule can be useful in warning of a recession before it is announced by the National Bureau of Economic Research (NBER), the agency that officially designates when the United States enters or exits a recession, Daco noted. Typically, a recession is defined as a decline in economic activity that lasts more than a few months, according to the NBER. But the U.S. economy continues to grow, with GDP growing 2.8% in the second quarter, faster than economists expected.

The Sahm rule doesn't apply this time because unemployment has increased because of an increase in the labor pool, Daco noted, not because companies are laying off workers. The unemployment rate can increase if more workers leave the labor market than enter, and if not all of those workers find jobs.

“Even though we're not in a recession today, the trajectory of the United States is one of slowdown,” Daco noted. “Whether it's wages, unemployment, layoffs, everything points to a slowdown in employment.”

How does a recession start?

Recessions can start in a variety of ways, from financial imbalances, such as the housing market crash in 2006, to an economic shock, such as the pandemic that shut down global businesses in 2020.

But economists now worry about a growing risk of recession stemming from the tight financial conditions facing many businesses and consumers: As the Fed battled inflation by raising interest rates to their highest level in 23 years, those increases have increasingly strained Americans seeking loans to buy homes or carrying credit card debt.

The recent market rout could also fuel those problems if it undermines confidence in the economy, forcing businesses to cut jobs or delay hiring, while making consumers hesitant to spend money, Daco added.

“If financial conditions tighten and consumers and businesses become concerned, there could be a decline in investment and consumer spending, which could lead to a recession,” he noted. “The combination of all these factors could lead to the materialization of the feared recession.”

Monday's market plunge fuels recession fears 01:57 The Fed's next decision

Despite concerns about growing risks, most economists believe the likelihood of a recession remains low, with Goldman Sachs noting that “a continued expansion is much more likely than a recession.”

Economic data was more positive Thursday, with new jobless claims falling to their lowest level since early July, the Labor Department said. The latest data cheered Wall Street and helped push the S&P 500 up more than 2%.

Economists and investors, meanwhile, are focused on the Federal Reserve’s next rate-setting meeting on Sept. 18. Chairman Jerome Powell last month opened the door to a rate cut next month, provided “we get the data that we hope to get,” meaning numbers showing that inflation continues to slow.

The majority of economists surveyed by FactSet expect a rate cut of 0.5 percentage points, double the usual cut, because of the weakening labor market, followed by additional cuts at the November and December meetings. Lower borrowing costs could ease some of the pressure on businesses and consumers, giving them additional room to hire or make purchases.

With rates at their highest level in more than two decades, the Fed has plenty of room to cut them, experts say.

“The Federal Reserve has significant room to support the economy and markets,” Solita Marcelli, chief investment officer for the Americas at UBS Financial Services, said in an Aug. 6 report. “Recent data have reinforced confidence that inflation is sustainably moving toward the 2% target, allowing the Fed to sharpen its focus on supporting growth and employment.”

More information on CBS News

Aimee Picchi

Aimee Picchi is an associate editor at CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national media outlets including USA Today and Consumer Reports.

What Are The Main Benefits Of Comparing Car Insurance Quotes Online

LOS ANGELES, CA / ACCESSWIRE / June 24, 2020, / Compare-autoinsurance.Org has launched a new blog post that presents the main benefits of comparing multiple car insurance quotes. For more info and free online quotes, please visit https://compare-autoinsurance.Org/the-advantages-of-comparing-prices-with-car-insurance-quotes-online/ The modern society has numerous technological advantages. One important advantage is the speed at which information is sent and received. With the help of the internet, the shopping habits of many persons have drastically changed. The car insurance industry hasn't remained untouched by these changes. On the internet, drivers can compare insurance prices and find out which sellers have the best offers. View photos The advantages of comparing online car insurance quotes are the following: Online quotes can be obtained from anywhere and at any time. Unlike physical insurance agencies, websites don't have a specific schedule and they are available at any time. Drivers that have busy working schedules, can compare quotes from anywhere and at any time, even at midnight. Multiple choices. Almost all insurance providers, no matter if they are well-known brands or just local insurers, have an online presence. Online quotes will allow policyholders the chance to discover multiple insurance companies and check their prices. Drivers are no longer required to get quotes from just a few known insurance companies. Also, local and regional insurers can provide lower insurance rates for the same services. Accurate insurance estimates. Online quotes can only be accurate if the customers provide accurate and real info about their car models and driving history. Lying about past driving incidents can make the price estimates to be lower, but when dealing with an insurance company lying to them is useless. Usually, insurance companies will do research about a potential customer before granting him coverage. Online quotes can be sorted easily. Although drivers are recommended to not choose a policy just based on its price, drivers can easily sort quotes by insurance price. Using brokerage websites will allow drivers to get quotes from multiple insurers, thus making the comparison faster and easier. For additional info, money-saving tips, and free car insurance quotes, visit https://compare-autoinsurance.Org/ Compare-autoinsurance.Org is an online provider of life, home, health, and auto insurance quotes. This website is unique because it does not simply stick to one kind of insurance provider, but brings the clients the best deals from many different online insurance carriers. In this way, clients have access to offers from multiple carriers all in one place: this website. On this site, customers have access to quotes for insurance plans from various agencies, such as local or nationwide agencies, brand names insurance companies, etc. "Online quotes can easily help drivers obtain better car insurance deals. All they have to do is to complete an online form with accurate and real info, then compare prices", said Russell Rabichev, Marketing Director of Internet Marketing Company. CONTACT: Company Name: Internet Marketing CompanyPerson for contact Name: Gurgu CPhone Number: (818) 359-3898Email: cgurgu@internetmarketingcompany.BizWebsite: https://compare-autoinsurance.Org/ SOURCE: Compare-autoinsurance.Org View source version on accesswire.Com:https://www.Accesswire.Com/595055/What-Are-The-Main-Benefits-Of-Comparing-Car-Insurance-Quotes-Online View photos