A disappointing US employment report sparked recent fears about a US economic recession. This sparked a steep global stock market decline.
Although the markets are partially recovering, there is still concern about where the economy will go.
Experts suggest, however, that the recession fears might be exaggerated.
Take a look at how the economy is currently performing and what experts think about the possibility of a recession.
Analysis of the job data
Recent US employment data has raised alarms. It shows a weak growth in jobs and an increase of the unemployment rate.
Goldman Sachs believes, however, that these concerns could be exaggerated.
David Mericle is the Chief US Economist for Goldman Sachs. He attributes this slowdown in job growth to temporary factors such as weather-related absences or an increase in temporary layoffs.
Mericle, in the Goldman Sachs Exchanges episode from August 6, emphasized that, despite the recent fluctuations, there is a consistent trend of job creation of around 150,000 jobs per month.
He warned against overreacting based on a month’s worth of data. In the absence of an economic shock that is significant, the situation currently appears more like a “deceleration”, rather than a recession.
The recession triggers are absent
In the past, specific economic shocks like oil price spikes or asset bubbles have triggered recessions.
Commerzbank says that none of the triggers is present at this time. Recent oil and gas prices are down, while energy costs remain lower than historical norms.
While there may have been some recent corrections in the asset markets, stocks remain close to their all-time highs and property prices have increased over the last year.
Bank of America notes that it would take a substantial and sustained decline in asset values to cause a recession. This seems unlikely for the moment.
In terms of household debt, it has fallen from 2008’s peak to 71% today. The corporate debt that rose in the COVID-19 epidemic has stabilised at 75%.
Commerzbank has concluded that, while there are some imbalances in the economy, these are not enough for them to be a threat.
Federal Reserve rate reduction: Is it overdue?
The belief that Federal Reserve has not cut rates since its meeting in July is one factor which contributes to the market’s volatility.
In the past, recessions in the US have been followed by sharp increases in interest rates.
Between March 2022 and the end of July 2023, Fed rates increased by 525 basis point.
Chris Hyzy is the Chief Investment Officer of Merrill and Bank of America Private Bank. He suggests that Fed rates are adjusted based more on employment and inflation trends than fears of a recession.
Futures markets indicate a 80% chance of a cut of 50 basis points in September.
Commerzbank warns that real interest rates are currently higher than their neutral levels, and this could trigger a possible recession.
While similar conditions existed in 1985 and 1984, they did not cause recessions.
Bank of England also states that the monetary policies alone are not sufficient to forecast a recession. Other factors, such as asset prices and long-term returns on assets also play an important role.
Experts say recession fears are overstated
Experts agree that despite some signs of recession, like the Sahm Rule indicator, it is not likely to happen.
In the next quarters, it is predicted that the US economy will grow slower than its long-term growth average.
This optimistic outlook is supported by favorable financing conditions, and by the likelihood of a moderated reduction in interest rates.
Investors should prepare themselves for volatility in the short term, diversify their portfolios and avoid impulsive reactions to news headlines.
Expert analysis and current data suggest that fears about an impending US recession are overblown.
This Post Is an imminent US recession? Experts dispute the current concerns may change as new information unfolds
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