Global stock markets are at Deepen the routprompting investors to turn to one of the most accurate indicators in history to determine whether the U.S. economy is in recession.
So-called”Sam’s Rules“There is no question that the initial stages of a recession begin when the three-month moving average of the U.S. unemployment rate is at least half a percentage point above its 12-month low.
The time-tested indicator, widely recognized for its simplicity and ability to quickly reflect the onset of a recession, was first introduced in 2019 as part of a policy proposal by economist Claudia Sahm. ) named after.
Weaker than expected July employment report on Friday Officially triggered Sam Rules. The data led to concerns among investors that the Federal Reserve may be lagging behind in cutting interest rates to stave off a recession.
However, the inventor of the rule is not convinced.
“We are not in a recession now – contrary to the historical signals of the Sam rule – but momentum is moving in that direction,” Sam told CNBC via email on Friday. “A recession is not inevitable and there is plenty of room for rate cuts.” big.”
Sam previously worked at the Federal Reserve and is now chief economist at New Century Consulting.
There are huge challenges in our understanding of what’s going on right now, which means – and I’ll be the first to say this – as a person who has his own rules – don’t rely on just one tool.
Claudia Sam
Chief Economist, New Century Consulting Company
Sam expanded on his view, pointing to U.S. consumer spending, production data and household incomes as reasons to be cautious about an inevitable recession.
“We’re in a slowdown,” Sam told CNBC’s “The Exchange.” “So, we’re not in contraction territory. Frankly, that’s not good enough, and we can do better than avoid a recession.”
“Today’s jobs report highlights that the direction of the economy is very concerning and the momentum is not good,” Sam said. “We are facing a recessionary trend and this should be a real wake-up call.”
“The Fed still has a big lever to pull”
“People have started using Sam’s rule to define whether the U.S. is in recession,” said Dario Perkins, managing director of global macro at TS Lombard. explain In a research note published Monday.
“While it’s nice to know that — better than waiting for the (National Bureau of Economic Research) — it misses the point,” Perkins said.
“Sam’s rule is trying to tell us something deeper about the recession process. The correct insight is that if the unemployment rate rises by 0.5%, it will probably rise more. It’s about reflexivity,” he added.
Federal Reserve Chairman Jerome Powell speaks during a news conference following the Federal Open Market Committee meeting at the William McChesney Martin Jr. Federal Reserve Building in Washington, DC, July 31, 2024.
Andrew Harnick | Getty Images
U.S. central bank policymakers on Wednesday Keep interest rates stableAlthough Fed Chairman Jerome Powell said a rate cut in September is on the table, it gave investors some hope.
Sam said the latest batch of weak economic data has cast doubt on the Fed’s decision to delay cutting interest rates until next month.
“However, they have something so important and reason to be optimistic. The Fed still has a lot of levers they can pull and they can do a lot of rate cuts if they need to,” Sam said.
“They don’t need to act all at once, but we do have levers to pull and take some of the pressure off the economy. The economy is in good shape right now, it just needs to take some of the pressure off,” she added.
In mid-June, Sam told CNBC that the U.S. central bank take risks If interest rates are not cut soon, the economy will slip into contraction.
“Don’t rely on just one tool”
Asked on Friday whether there was evidence that questionable market signals were complicating the Fed’s decision-making process, Sam responded: “We can’t let the perfect be the enemy of the good. When it comes to macro forecasting, macroeconomic policy, investment, I mean it’s really hard.
Sam said: “We will never have all the data… We always want to release the next data, we always want to have better information, so any decision the Fed makes must be based on uncertainty. Made next.
“Our understanding of what’s going on right now is very challenging, which means – and I’ll be the first to say this, as someone with a name – don’t rely on just one tool,” she said continued.
“You really have to open up and really think about what they disagree with the most.”
—CNBC’s Jeff Cox contributed to this report.
