#Recession #Economy #Unemployment #SahmRule #FinancialMarkets #FederalReserve #JobGrowth #EconomicIndicators
The ongoing debate about whether the U.S. is heading towards a recession continues to stir opinions and analyses among economists and financial commentators. While Greg Ip suggests that the conditions for a recession are not currently in place, others, including Mike Shedlock, author of the piece and a prominent voice on MishTalk.com, strongly disagree. They argue that an examination of various economic indicators, including the usage and interpretation of the Sahm Rule, points towards a different narrative.
The Sahm Rule, initially developed by Edward McKelvey and later modified by Claudia Sahm, is a recession indicator that focuses on the unemployment rate. The rule posits that if the three-month moving average of the unemployment rate rises by at least 0.5 percentage points from its low over the previous 12 months, a recession is underway. Despite Sahm’s claim of modifying it for improved accuracy, the rule has been criticized for its lag in signaling recessions, with critics pointing out instances where the rule triggered months after a recession had begun.
Shedlock challenges the optimistic viewpoint presented by Ip, arguing through detailed analysis of economic data such as nonfarm payrolls and industrial production indexes. He points out that Ip’s assessment ignores the lag effect inherent in the Sahm Rule and other recession indicators. By examining changes in nonfarm payrolls and industrial production leading up to and during previous recessions, Shedlock illustrates that significant indicators were already on a downward trend before the recession was officially recognized. Furthermore, he criticizes the reliance on potentially flawed data in official employment statistics, citing large discrepancies in job growth numbers reported by the Bureau of Labor Statistics and those derived from more comprehensive sources.
This analysis underscores the complexity of predicting recessions and the importance of examining a broad range of data points. Shedlock’s contention with the optimistic outlook on the economy highlights the divide between those who see recession risks as minimal and others who argue that signs of an economic downturn are already present. The debate serves as a reminder of the uncertain nature of economic forecasting and the varied interpretations that different analysts can have of the same data sets.
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