Is the US heading towards a recession? | Business and economic news

The unexpected rise in the unemployment rate in the United States has left economists divided: is the US on the brink of a recession or not?

The unemployment rate jumped to a nearly three-year high of 4.3% in July, according to data released Friday. The increase – up from 4.1% in June, and above the five-decade low of 3.4% in April last year – sets the stage, more than ever, for a cut in interest rates at the next EU meeting. Federal Reserve, in September.

Which raises the question: is it too late?

The jump in the unemployment rate “points to a recession in 2025,” Gary Clyde Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics, told Al Jazeera. “I’m waiting for the [US] The Fed will begin cutting the policy rate in September and will continue to cut at subsequent meetings. This response will likely guarantee a shallow recession,” he added.

Stock markets also reacted with fear of a recession. The Dow Jones average fell more than 700 points — nearly 2 percent — in afternoon trading Friday, and the broader S&P 500 fell 2 percent, as Wall Street banks called for bigger and more rate cuts than expected. as expected so far.

Economists at Goldman Sachs and Citigroup, among others, renewed their expectations for a half-point rate cut in September and November, and a quarter-point rate cut in December.

This all comes on the back of a week of weak data, including a slowdown in manufacturing and negative employment sentiment, which points to a downward economic trend.

‘Does not signal a recession’

But not everyone agrees with this scenario.

“We don’t see a recession, despite the stock market today behaving as if anticipating a recession,” Nancy Vanden Houten, chief economist at Oxford Economics, told Al Jazeera.

“The jobs report was definitely weaker than most economists expected and we are not discounting signs of a weaker labor market, but there are things going on below the surface” that need to be taken into account when analyzing Friday’s data, Vanden Houten said.

On the one hand, there are many more people looking for work – around 420,000 people entered the labor force last month. These are new immigrants entering the job market and “that is a good thing”, highlighted Vanden Houten.

Additionally, in the jobs survey, there was a big jump in the number of people who claimed they were on temporary layoff or not working because of the bad weather, referencing the slowdown in work in Texas because of Hurricane Beryl last month.

“The number of people who reported not working in July due to severe weather was higher than any non-winter month since September 2017, when the effects of Hurricanes Harvey, Irma and Maria hit the Southeastern U.S.,” said Matt Colyar , assistant director of Moody’s Analytics.

“This is just proof that what the Federal Reserve wanted to do – slow down the economy, slow down employment so people don’t keep changing jobs and get high raises of 8 to 10 percent – ​​is happening. This does not signal a recession,” Colyar told Al Jazeera.

Additionally, the last pre-pandemic recession had other catalysts for a recession, including very high household debt and mortgages that homeowners couldn’t keep up with, a situation that currently doesn’t exist, Vanden Houten explained.

The data, however, started conversations about the so-called “Sahm rule”. Former Federal Reserve economist Claudia Sahm invented a measure that examines how quickly the unemployment rate is rising to determine if it is an indication of a recession.

But Sahm herself doubted that a recession is “imminent”, even though the Sahm government was close to being triggered.

For now, both Vanden Houten and Colyar maintain their previous predictions of rate cuts: a quarter point cut in September and another in December.

“It will take more than a bad jobs report for me to say that the recession they have been waiting for every day is finally here,” Colyar said.

For now, all eyes are on next month’s jobs report for a clearer picture of the U.S. job market and economy. Until then, economists like Colyar will track weekly unemployment claims to get a sense of the situation on the ground, he said.

However, the latest data will influence the upcoming presidential elections.

Former President Donald Trump’s campaign said Friday that the jobs report is “further evidence that the Biden-Harris economy is failing Americans,” the Associated Press news agency reported.

Any weakening of the economy will work against the incumbent, Vanden Houten said. Although President Joe Biden is no longer in the race, Vice President Kamala Harris is part of the Biden team and this could negatively impact her, Vanden Houten highlighted.