US fears of recession are exaggerated

ECONOMIC pundits, markets and the media are in collective freakout mode, resurrecting the “R” word: recession. US unemployment jumped from 4.1 per cent in June to 4.3 per cent in July, while payroll gains of 114,000 underperformed expectations of around 175,000. Concurrently, stocks capped off a bad week, for the overextended Nasdaq in particular, and the sell-off is continuing in reaction to the unemployment report and unwinding of large global carry trades.

Media and analysts thundered. Reactions included: a recession is not off the table; recession fears are being fanned; recession probabilities are deepening; the Sahm rule recession threshold has been triggered.

It seems as if only a month ago, the dominant public narrative was that inflation was too high, sticky and far above the Federal Reserve’s 2 per cent target. Services and shelter prices were a trouble spot, food prices were elevated and public opinion polls were finding that – with elections approaching – the scourge of inflation was the No 1 US economic challenge and threat.