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Economic Outlook: Difference between revisions
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Some analysts oppose to the idea of a recession due to the fact that the labor market is still strong, but is important to take into account that the labor market is one of the most lagging economic indicators. While unemployment is an important recession indicator, unemployment usually peaks long after the recession has begun and can last well into recovery. That's because the NBER (and others) say a recession is over when the economic contraction hits bottom and starts to rebound, not when the recovery is complete. As an example, in 2008, the recession began in December 2007 and ended in June 2009, according to NBER. Yet in April 2008, five months into the recession, the U.S. unemployment rate was just 5%, up only slightly from 4.7% six months earlier. Unemployment continued to rise to hit 10% by October 2009, four months after the official end of the recession and seven months after the stock market hit bottom.<ref>https://www.investopedia.com/ask/answers/032515/why-does-unemployment-tend-rise-during-recession.asp#citation-21</ref> | Some analysts oppose to the idea of a recession due to the fact that the labor market is still strong, but is important to take into account that the labor market is one of the most lagging economic indicators. While unemployment is an important recession indicator, unemployment usually peaks long after the recession has begun and can last well into recovery. That's because the NBER (and others) say a recession is over when the economic contraction hits bottom and starts to rebound, not when the recovery is complete. As an example, in 2008, the recession began in December 2007 and ended in June 2009, according to NBER. Yet in April 2008, five months into the recession, the U.S. unemployment rate was just 5%, up only slightly from 4.7% six months earlier. Unemployment continued to rise to hit 10% by October 2009, four months after the official end of the recession and seven months after the stock market hit bottom.<ref>https://www.investopedia.com/ask/answers/032515/why-does-unemployment-tend-rise-during-recession.asp#citation-21</ref> | ||
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 | 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. | ||
In addition, 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 4.1%, 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. | In addition, 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 4.1%, 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. | ||