After U.S. debt officially passed the $35 trillion mark on July 29, questions about the economy’s overall state and the potential for a recession intensified.
One indicator that could signal an impending U.S. economic recession is the Sahm Rule, which signals a downturn when the unemployment rate rises 0.5 percentage points above its lowest point in the past 12 months.
Historically, a recession has followed every time this indicator has crossed the 0.5% threshold. Currently, it stands at 0.43%, just 0.07 percentage points shy of signaling a recession in the U.S.
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According to FRED data, the threshold would be broken if the unemployment rate increases to 4.2% in this week’s jobs report, set for release on August 2.
What do economists forecast for the July 2024 employment report?
The provisional forecast for the July jobs report, set to be released on Friday, indicates a net increase of 200,000 jobs, with the unemployment rate expected to ease from 4.1% to 4%, according to an estimate from The Real Economy Blog analyst on July 29.
Analyst Joseph Brusuelas also anticipates a 0.2% rise in average hourly earnings, translating to a 3.7% year-over-year increase. Seasonal hiring in the leisure and hospitality sector will likely be a significant factor in the report.
July typically presents seasonal adjustment challenges for the Bureau of Labor Statistics; this year is no exception.
If the forecast is incorrect, it could indicate a faster pace of hiring in the overall estimate.
Additionally, the direction of the unemployment rate will be a key focus, as it has been rising due to more people entering the workforce, attracted by higher wages.
Expert believes the Fed should cut rates as soon as possible to ease the recession
While Wall Street expects Fed Chairman Jerome Powell to cut the base rate in a September Fed meeting, some experts warn it may already be too late to prevent a recession.
Goldman Sachs and UBS anticipate a rate cut before the November presidential elections but not as early as the Fed’s July meeting.
One of the advocates for an earlier interest rate cut is former New York Fed President Bill Dudley, who was initially a proponent of higher rates for longer, now urges an immediate interest rate cut.
The former New York Fed President argues that the economic landscape has shifted because of consumer slowdowns, rising car repossessions, and loan delinquencies.
“The facts have changed, so I’ve changed my mind. The Fed should cut, preferably at next week’s policymaking meeting,” Dudley wrote on July 24.
He believes the Fed should act swiftly despite skepticism about the severity of rising unemployment.
Dudley emphasizes that delaying rate cuts could heighten the risk of a recession, even if it might already be unavoidable.
