Markets React Swiftly to the Spectre of a Recession in the United States

Markets React Swiftly to the Spectre of a Recession in the United States

Published on: August 6, 2024

Category: News

Stock markets worldwide accelerated their fall on Monday, alarmed by a slowdown in the U.S. jobs market that has investors fearing an American recession. Following the publication of weaker-than-expected employment figures on Friday, most indexes had already moved into correction territory. Given that job creation data remains positive, can we argue that markets overreacted to last Friday’s employment figures?

The likelihood of a recession in the United States has increased due to lower total hours worked and the employment diffusion index (1) below 50%. However, this could be a positive sign for third quarter productivity data, as the gap between the hiring and separation rates, the latter an indicator of employees leaving their jobs voluntarily or not, is not particularly alarming.

Note also that the Conference Board’s coincident indicator is accelerating. Over the coming months, we’ll keep a close eye on this data, which is closely linked to the probability of a recession. For now, we have not yet reached that point and will need more convincing data before calling that a recession for the United States is imminent.

Against this backdrop, one may argue that the U.S. Federal Reserve has taken too long to lower its monetary policy rate. However, a few months’ delay will not necessarily lead to an abyss, as envisioned by the most pessimistic, but rather to a more pronounced slowdown.
 

(1) A diffusion index measures the share of industries experiencing an increase in activity - measured by output, employment, prices, profits or virtually any other relevant variable - over a given time span.