World stock markets have reported a serious decline since the end of last week, when a disappointing US employment report triggered what is called "Sam's rule", usually a reliable indicator of recession, AFP reported, quoted by BTA.
What does "Sam's Rule?"
mean
"Sam's Rule" was created by Claudia Sam, a former US Federal Reserve Board and White House economist.
It states that the US economy enters a recession when the average unemployment rate over the past three months exceeds 0.5 percentage points (50 basis points) above the lowest level over the past 12 months.
This "purely empirical indicator" which has no "theoretical basis" was 0.53 percentage points in July 2024, Florian Jelpo, head of macroeconomic research at Lombard Odier IM, told AFP. (Lombard Odier IM).
After Friday's release of US unemployment data, which rose more than forecast to 4.3 percent, the highest level since October 2021, markets are "clearly concluding that there will be a recession and are entering red territory", he commented.
There will be no recession, according to the rule maker
Despite these figures, Claudia Sam herself doubts that this rule will be applicable this time: "I am not afraid that we are currently in a recession," she told the American publication "Fortune" in an interview published Friday.
"Nobody should be panicking at the moment, although that is exactly the case for some," as there are key indicators for the economy which "are still very good,", she added.
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However, the economist notes that household incomes continue to grow, and consumption and investments remain sustainable.
UFR President Jerome Powell also tried to calm spirits, saying at his press conference on Wednesday that Sam's rule was a "statistical pattern" and it is not an "economic rule that tells you something will happen".
The Federal Reserve decided to keep interest rates at their lowest level in 20 years, paving the way for another cut in September.
Implications for Interests
Recession fears are increasing pressure on the Fed to cut rates more than expected even before the Fed's next meeting.
However, Powell's speech preceded the release of unemployment data.
"Is there a reason for the UFR to lower interest rates? For the moment, this is unlikely," Florian Jelpo claims.
According to him, "it could be expected, after the Fed releases its forecasts next month, to resort to a 50 basis point cut to cushion and slow the decline in the markets, if it does continue until then.
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