The probability of a recession is uncertain and cannot be accurately predicted. Goldman Sachs has increased the probability of a U.S. recession to 25%. JPMorgan predicts a 35% probability of a certain event commencing before the end of the year.
The following analysis presents the assessment of five highly monitored market indicators about the likelihood of a worldwide recession:
1/ Data Enigma
In July, the unemployment rate in the United States surged to nearly a three-year high of 4.3% due to a substantial decrease in the rate of hiring.
It heightened concerns about a recession by meeting the criteria of the “Sahm rule”, which traditionally indicates that a recession is occurring when the three-month average unemployment rate increases by 0.5% above the lowest rate observed in the previous 12 months.
Given that immigration and Hurricane Beryl can skew the numbers, some economists believe that the response to the report was exaggerated. The positive unemployment claims report on Thursday, which exceeded expectations, also contributed to the optimistic outlook and resulted in a surge in stock prices.
“Employment figures continue to increase.” Dario Perkins, the managing director of global macro at consultant TS Lombard, expressed that if payrolls began to show negative growth, it would significantly increase concerns about the onset of a legitimate recession.
The labor market has unexpectedly shown signs of strength, contrary to investors’ previous beliefs.
The United States economy expanded by 2.8% in the second quarter, when measured on an annualized basis. This growth rate is twice as high as the rate observed in the first quarter and is comparable to the average pace observed before the pandemic. The activity in services sector also indicates that the rise is expected to continue.
Outside of the United States, business activity indices suggest a decline in economic growth in the euro zone, while China’s recovery is still uncertain.
The latest data from Citi’s surprise index indicates that global economic data is currently experiencing a high frequency of negative shocks, reaching levels not seen since mid-2022.
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