A Recession May Be on the Horizon (But Don't Panic Yet)

Audio version available here (1 min. 45 sec.)

A recent report for the month of July revealed that unemployment jumped to a rate of “4.3%, a three year high”, and that the overall US job market, essential in the US economy, has “lost steam”. This is a potentially dangerous forewarning of what may come for the US economy, and many fear a recession could occur very soon. However, there may not be a need to panic yet.

The current unemployment rate has triggered the “Sahm rule, a well-known recession indicator”. This rule comes into play if the average unemployment rate of the last 3 months, when compared to the lowest point of the last 12 months, has increased by at least 0.5 percentage points. It can then indicate that the economy is showing “early signs of a recession”. Despite the Sahm rule being triggered by July’s report, many experts are not yet signaling that a recession is near and instead believe that the US will achieve a “soft landing” and ride out the high inflation.

Unfortunately, there have already been negative consequences of this report felt by Americans. 401(k)s have taken a huge blow from the employment report due to a reactionary “mass selloff on Wall Street”. All the major stock indexes suffered significant drops, with the Dow, Nasdaq Composite, and S&P 500 all dropping by more than 1%. Investors are slightly worried about the current situation, but they were not “spooked by the softer-than-expected economic data” recently, feeling instead that inflation has reduced enough already for interest rates to come down.

While there are many signs pointing to a recession, there is still a “silver lining” in all this concern. The Federal Reserve has hinted that they would lower interest rates this year; although that has not happened yet, many indicators push that one will occur soon. The bad July unemployment report has essentially ensured a rate cut in September—which may even be larger than expected. This means relief could be coming to all Americans very soon. In order to stay updated on the economy’s downturn and the upcoming Fed interest rate drop next month, check in regularly with XQ CPA’s blog.

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Sources:

https://www.nbcnews.com/news/amp/rcna165119