NEW YORK, Dec 30 (Reuters) – Just over half of the 50 US states are showing signs of slowing economic activity, surpassing a key threshold that often signals a recession is on the way, according to new research of the St. According to the report of the Federal Reserve Bank of Louis.
That report, released Wednesday, followed another report from the San Francisco Federal Reserve earlier in the week that also delved into the growing prospect that the US economy could slip into recession sometime in the next few months.
The St Louis Fed said in its report that if 26 states have declining activity within their borders, that offers “reasonable confidence” that the nation as a whole will fall into a recession.
At this time, the bank said that, as measured by Data fed by Philadelphia Following the performance of individual states, 27 had declining activity in October. That’s enough to point to a looming recession and not hit the numbers that have been seen before from other recessions. The authors noted that 35 states suffered declines before the short, sharp recession seen in the spring of 2020, for example.
Meanwhile, a San Francisco Fed report, released Tuesday, noted that changes in the unemployment rate It can also indicate that a recession is on the way, in a signal that offers more near-term predictive value than the closely watched bond market yield curve.
The authors of the article said that the unemployment rate bottoms out and begins to rise before the recession in a highly reliable pattern. When this change occurs, the unemployment rate indicates the start of the recession in about eight months, according to the newspaper.
The paper acknowledged that its findings are similar to those of the Sahm Rule, named for former Fed economist Claudia Sahm, who pioneering work linking an increase in the unemployment rate to economic recessions. The San Francisco Fed research, written by banking economist Thomas Mertens, said its innovation is to make the change in the unemployment rate a forward-looking indicator.
Unlike the St. Louis Fed state data which leans towards a recessionary projection, the US unemployment rate has so far held fairly steady and after bottoming out at 3.5% in September, it stood at 3.7% in both October and November.
The San Francisco Fed document noted that the Fed, based on its December forecasts, expects the unemployment rate to rise next year in the midst of its aggressive rate hike campaign destined to cool the high levels of inflation. In 2023, the Fed sees the unemployment rate jumps to 4.6% in a year that sees only modest levels of overall growth.
If the Fed’s forecast comes true, “such an increase would trigger a recession prediction based on the unemployment rate,” the newspaper said. “Under this view, low unemployment can lead to a higher probability of recession when the unemployment rate is expected to rise.”
Tim Duy, chief economist at SGH Macro Advisors, said he believes that to achieve what the Fed wants on the inflation front, the economy would likely “lose approximately two million jobs, which would be a 1991 or 2001 recession.” ”.
Anxiety about the prospect of the economy. falling into recession it has been boosted by the Fed’s forceful actions on inflation. Many critics hold that the central bank is focusing too much on inflation and not enough on keeping Americans employed. Central bank officials have responded that without a return to price stability, the economy will struggle to reach its full potential.
Also, at the press conference following the most recent Federal Open Market Committee meeting earlier this month, central bank leader Jerome Powell said he did not view the Fed’s current outlook as a recession prediction given that growth expectations will remain positive. But he added that much remains uncertain.
“I don’t think anyone knows if we’re going to have a recession or not, and if we do, whether it’s going to be deep or not. It’s just that you can’t tell,” Powell said.
Reporting by Michael S. Derby; Edited by Dan Burns and Aurora Ellis
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