U.S. Economists Divided on Recession Risk: Chances of Economic Downturn Increasing

Recent signs of a potential recession in the United States have raised concerns with an increase in the national unemployment rate. Although various experts hold different views on the likelihood of a recession within the next twelve months due to current market conditions, Scott Wren, a senior global market strategist at Wells Fargo, urges calm. He described the fear of a recession as 'overblown.' While economists at Wells Fargo predict an economic slowdown, Goldman Sachs increased the probability of a recession next year from 15% to 25% on Sunday but still considers the risk 'limited', Bloomberg reported. These recession fears led to a decline in the US markets on Monday. To better understand the concept of a recession, the Sahm Rule, named after former Federal Reserve economist Claudia Sahm, states that a recession is likely if the unemployment rate rises by at least half a percentage point based on a three-month average compared to the previous year. This rule has accurately predicted all US recessions since the 1970s. A labor market report from July showed that 114,000 fewer jobs than expected were created, and the unemployment rate rose from 4.1% to 4.3%, triggering the Sahm Rule. Claudia Sahm told Bloomberg Television that 'it is very unlikely that we are already in a recession,' but it is 'uncomfortably close to this situation'. California recorded an unemployment rate of 5.2% in June, as reported by the Bureau of Labor Statistics. The state shares the highest unemployment rate among the 50 US states for that month with Nevada. The International Monetary Fund states that there is no official definition of a recession. The National Bureau of Economic Research describes a recession as a 'significant decline in economic activity that lasts more than a few months and is usually visible in production, employment, real income, and other indicators'. In a recession, the economy contracts, leading to layoffs and lower hiring while unemployment rises and wage growth stagnates, USA TODAY reports. Investments in stocks, bonds, and other assets can lose value, and business owners might file for bankruptcy as sales decline, according to Forbes. Regardless of whether the US experiences a recession soon, individuals can take steps to be better prepared. Creating a monthly budget to understand basic living expenses and tracking account movements is just one tip from The Ascent, a personal finance service from Motley Fool. Fidelity advises 'sticking to the investment plan, even during market volatility' and recognizing that volatility is part of the stock market. Despite the difficulty of setting aside money for emergency savings, experts recommend having an emergency cushion—enough savings to cover three to six months of living expenses, according to NerdWallet. The American Bankers Association suggests contributing smaller amounts monthly to this savings goal. One way is to directly deposit a portion of the salary into such an account, as less is saved after expenses are paid, according to the ABA.