'I Do Not Think The US Economy Is In Recession:' Sahm Rule Creator Refutes Claims Amid Market Turmoil

Claudia Sahm, the economist who invented the Sahm Rule, has contradicted claims of a recession in the U.S. economy. This comes amid mounting fears of a recession due to recent market instability.

What Happened: Sahm, who is known for developing the Sahm Rule, a key indicator used to predict the onset of a recession, has stated that she does not believe the U.S. economy is in a recession. This assertion follows a period of economic uncertainty and market volatility.

“I do not think the U.S. economy is in recession,” Sahm said, in an interview with The Compound. She emphasized that the current economic cycle is unusual, and the traditional indicators may not be accurately reflecting the situation.

Most analysts define a recession as two consecutive quarters of decline in real GDP. Sahm noted that while there was a GDP decline in the first half of 2022, it did not result in a recession.

These comments come in the wake of recent market turmoil, which has sparked concerns about a potential recession. The turmoil was driven by a slight increase in U.S. unemployment and significant drops in key indices, such as Japan’s Nikkei 225 on Monday.

However, the Japanese stock market significantly recovered on Tuesday following a historic plunge, with other Asia-Pacific markets also showing signs of improvement.

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Why It Matters: Her remarks also follow a recent challenge to the Sahm Rule by Federal Reserve Chair Jerome Powell, who dismissed the rule during a press conference after the Federal Reserve’s policy meeting. Powell’s stance was in contrast to Sahm’s call for immediate action to address inflation.

The debate over whether the U.S. is in a recession has been ongoing, with notable economists weighing in. Recently, Paul Krugman highlighted potential pre-recessionary signals, pointing to the Sahm Rule as a key indicator. Krugman emphasized that the rule is sending a “cautionary message” about the U.S. economy’s health.

Meanwhile, U.S. services activity returned to growth in July, potentially easing recession fears. The ISM Services PMI rose to 51.4%, indicating expansion, while the S&P Global Composite PMI also showed positive signs, albeit at a slower pace.

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Image via Dall-E

This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote