Is the United States Heading to a Recession?

• On August 2, 2024, the Bureau of Labor Statistics released the July jobs report.

• It sent shockwaves through the financial and political worlds.

• It crashed stock markets and raised the risk of a recession.

How the economy took a downturn:

The July Jobs Report

Key points from the July jobs report:

• The economy added only 114,000 jobs, contrary to expectations of higher payroll growth.

• The unemployment rate rose to 4.3%, the highest since October 2021.

• Wages barely kept up with rising prices, showing stagnant growth.

This is the first negative jobs report since the post-pandemic recovery began. It raises concerns about the strength of the economic rebound.

How the Market Reacted

The jobs report surprised everyone. Investors reacted strongly, leading to significant drops across major stock indexes.

Here's how the market responded:

• The Dow Jones fell over 1,000 points, its worst day since March 2020

• The S&P 500 dropped more than 3%, its biggest loss since September 2022

• The VIX "fear index" hit its highest level since 2022, showing increased worry among investors.

These dramatic market movements reflect more than just a bad day on Wall Street. They show deep worries about the economy and doubts about growth.

What’s Behind the Economic Downturn

Economic shifts like this rarely happen in isolation. Several decisions and global factors may have contributed to this sudden downturn.

Key factors influencing the economy:

• Federal Reserve Policies: The government's efforts to reduce the deficit may have inadvertently slowed economic growth

• Labor Market Dynamics: The increase in unemployment over the last four months affected consumer confidence.

• Political Decisions: Political decisions regarding fiscal policies and spending influenced economic conditions.

These factors, plus the pandemic and global economic pressures, have led to a complex economic situation.

Inflation: Still a Problem

Despite efforts to curb prices, inflation remains a challenge for the economy. The Federal Reserve aims to reduce inflation to 2%. goal. But progress has been slower than hoped.

Current inflation figures:

• Consumer price inflation (CPI) rose by 3% in June compared to last year.

• Core inflation (excluding food and energy) for June increased by 3.3% compared to last year.

• Energy prices remain volatile due to tension in the Middle East, adding uncertainty to the economic outlook

These numbers put the Federal Reserve in a difficult position. They need to continue fighting inflation without pushing the economy into a recession.

Are We Heading Towards a Recession?

Recent economic data is worrying. We're not in a recession yet. But, some indicators suggest the risk is growing.

Economic recession indicators:

• Goldman Sachs raised the probability of a recession in the next year from 15% to 25%.

• The rise in unemployment raised the Sahm Rule Recession Indicator to 0.53. This is often an early warning sign.

• By May 2025, there's about a 52% chance the U.S. could enter a recession, according to some projections

Recessions are complex. Not all economists agree on the chance of one. Some experts believe the economy will overcome this rough patch.

The 2024 Election: Economy Takes Center Stage

With the November elections, the state of the economy is now the main point of political debates.

Here's how the main candidates are positioning themselves:

Donald Trump

Trump is leveraging his past economic record to appeal to voters:

• Promises to make the U.S. a manufacturing superpower to boost domestic jobs.

• Trump has also vowed to “immediately tackle“ inflation.

• He has also promised tax cuts and deregulation to stimulate growth

• Frames himself as a more competent economic manager

The former president has criticized the current administration for the recent market downturn. He has promised to restore prosperity under his leadership. But he has not yet announced concrete policy measures he would take if returned to power.

Kamala Harris

Vice President Harris, now the Democratic nominee, faces the challenge of defending the Biden administration's economic policies:

• Highlights achievements such as post-COVID economic recovery.

• Emphasizes efforts to address inflation through measures like the Inflation Reduction Act

• Supports policies for working families, like childcare aid and paid leave.

• Defends the Biden administration's long-term economic strategy.

Harris's campaign is working to counter criticism by highlighting inconsistencies in Trump's economic stance.

RFK Jr.

Kennedy has positioned himself as an advocate for significant financial reforms:

• Pledges to enact "aggressive" reforms targeting Wall Street practices.

• Supports retail investors and criticizes "predatory short selling".

• Promises stricter penalties for market manipulation.

• Presents himself as a champion of economic fairness

Kennedy's approach aims to win over frustrated voters. Those voters want a new financial system and are fed up with old economic policies.

Our Thoughts

• As we navigate these uncertain economic times, it's clear that the state of the economy will be the defining issue of the 2024 election.

• For voters, it's important to evaluate each candidate's economic vision.

News Worthy:

#1 — Kamala Harris names Tim Walz, the Minnesota governor, as running mate 🗞️ 

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