NEW YORK (Reuters) – More than half of the 50 U.S. states are showing signs of slowing economic activity, crossing a critical threshold indicating a recession is approaching, according to a report by the St. Louis Federal Reserve Bank. .
The report, released Wednesday, followed another report released by the San Francisco Fed earlier in the week, bolstering expectations that the U.S. economy could slip into recession at some point in the coming months. I dug.
The St. Louis Fed said in a report that if 26 states shut down within its borders, it offered “reasonable confidence” that the entire country would be in recession.
Data now tracked by the Philadelphia Fed’s individual state performance shows that activity declined in 27 states in October, the bank said. While this falls short of numbers seen prior to some other recessions, it is sufficient to indicate a looming recession. It notes that 35 states fell before a major recession.
Meanwhile, a change in the unemployment rate could signal an approaching recession, which is shorter than the closely watched bond market yield curve, according to a San Francisco Fed report released on Tuesday. A signal that provides a reasonable predictive value.
The paper’s authors say the unemployment rate will bottom out and begin to rise in a very credible pattern ahead of the recession. When this shift occurs, the unemployment rate marks the beginning of a recession in about eight months, the paper said.
The newspaper acknowledged that its findings were similar to those of the Sam Rule. The Sarm rule is named after Claudia Sarm, a former Fed economist who pioneered research linking rising unemployment to recession. The innovation is to make changes in the unemployment rate a positive indicator, according to a study by the San Francisco Fed, authored by banking economist Thomas Mertens.
Contrary to St. Louis Fed data, which is skewed toward recession forecasts, the U.S. unemployment rate has remained fairly stable so far, bottoming out at 3.5% in September before rising in October and November. Both remained at 3.7%.
The San Francisco Fed noted that as of its December forecast, it expected unemployment to rise next year amid an aggressive rate-hiking campaign aimed at curbing high levels of inflation. The Fed expects the unemployment rate to jump to his 4.6% in 2023 and overall growth to remain marginal.
If the Federal Reserve’s forecast comes true, “such an increase would trigger recession forecasts based on the unemployment rate,” the paper said. “In this view, low unemployment may increase the likelihood of a recession if unemployment is expected to rise.”
Tim Duy, chief economist at SGH Macro Advisors, said that to achieve what the Fed wants on the inflation front, the economy “could lose about 2 million jobs, more than it did in 1991 and 2001.” It’s going to be a recession,” he said.
Anxiety over the prospect of the economy slipping into recession is driven by the Fed’s heavy-handed action against inflation. Many critics argue that the central bank puts too much emphasis on inflation and not enough to keep Americans employed. Central bank officials counter that the economy will struggle to reach its full potential unless prices stabilize.
Moreover, at a press conference following the latest Federal Open Market Committee meeting earlier this month, Central Bank Governor Jerome Powell said he did not consider the current Fed outlook as a forecast of a recession. But he added that much remains uncertain.
“I don’t think anyone knows if there will be a recession and if it will be severe, it’s just that we can’t know,” Powell said.
(Reporting by Michael S. Darby; Editing by Dan Barnes and Aurora Ellis)