U.S. recession fears and the Sahm rule
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U.S. RECESSION FEARS AND THE SAHM RULE
Markets await key jobs data later in the session while struggling to understand the direction of the U.S. economy after recent weak figures.
Elisabet Kopelman, U.S. economist at SEB Bank, recalls that the historical experience is that turnarounds in the labour market can occur quickly and brutally and that relatively moderate increases in unemployment have been enough to trigger recessions in the United States, the so-called Sahm rule.
The Sahm Rule is a recession indicator that signals the start of a recession when the three-month moving average of the national unemployment rates rises by 0.5 percentage points or more, relative to the minimum of the three month averages from the previous 12 months.
"The U.S. unemployment rate is expected to be unchanged at 4.1% in July, which is in line with the Fed's assessment of long-term equilibrium unemployment," she recalls after wondering if Sahm's recession rule is about to be triggered.
"Should unemployment, contrary to expectations, surprise on the upside in July, we can be there already," she says.
However, some market participants remain upbeat about the global economy despite recent weak economic data.
"We presently consider recession fears to be premature," says Mark Haefele, chief investment officer at UBS Global Wealth Management.
"The bottom line is that recent data support our view that the U.S. economy is headed for a soft landing rather than a contraction. In our view, this justifies two 25-basis-point rate cuts this year rather than the three that the market is now pricing," he adds.
(Stefano Rebaudo)
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