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Economic Outlook: Difference between revisions
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Is also important to mention that even though leading indicators can provide a picture of the direction we can expect the economy to take in the coming months, is not possible to derive from them the magnitude of the possible decline. At this moment, we could just consider that given that some of the numbers analyzed are in line with numbers seen in past recessions, historically it could mean that the probability of a serious contraction is higher than just a mild recession, but most importantly, given the FED narrative and actions to continue tightening while this economic contraction unfolds., which could lead them to an overtighten scenario. | Is also important to mention that even though leading indicators can provide a picture of the direction we can expect the economy to take in the coming months, is not possible to derive from them the magnitude of the possible decline. At this moment, we could just consider that given that some of the numbers analyzed are in line with numbers seen in past recessions, historically it could mean that the probability of a serious contraction is higher than just a mild recession, but most importantly, given the FED narrative and actions to continue tightening while this economic contraction unfolds., which could lead them to an overtighten scenario. | ||
According to the Sahm rule<ref>https://fred.stlouisfed.org/release?rid=456#:~:text=The%20Sahm%20Rule%20identifies%20signals,time%20Sahm%20Rule%20Recession%20Indicator</ref>, the US economy will be in a recession when the unemployment rate hits 4.0%, the FED projections show an unemployment rate already of 4.6% in 2023 , a level above the rule threshold, and not in line when their narrative of a soft landing possible. The Sahm rule also shows that when the unemployment rate rises 0.5% over the course of a year, it ends up rising by around 2% or more, which means there is a probability the US economy could end up with levels of at least 6% unemployment. | |||
6% Unemployment is in line with some analyst scenarios of 6-7% following the serious decline in housing activity the economy is experiencing, and even though is still a low level compared to other times in history, is the rate of change in the indicator that will determine how bad the recession will be, since the rate of change of the economy (GDP) will move according to the rate of change of the economic variables. | 6% Unemployment is in line with some analyst scenarios of 6-7% following the serious decline in housing activity the economy is experiencing, and even though is still a low level compared to other times in history, is the rate of change in the indicator that will determine how bad the recession will be, since the rate of change of the economy (GDP) will move according to the rate of change of the economic variables. | ||