Mentions of ‘recession’ have been increasing across social media and in financial headlines in recent weeks, but the signals have been mixed, leading to increased volatility across markets as investors struggle to make sense of the data and plan accordingly. 
 

A series of economic data and strong earnings reports

Investor fears of a recession have been easing, thanks to a series of economic data and strong earnings reports indicating a healthier economy.

Global stocks closed the week on a downcast note Friday after poor US jobs data stoked recession fears while Japan's Nikkei tumbled on a resurgent yen.

The US economy added 114,000 jobs last month, a drop from the prior month and fewer than expected, while the jobless rate rose to 4.3 percent, the highest level since October 2021.

The report added to recession fears following lackluster manufacturing data on Thursday, pushing major US indices into the red for the entire day after a down session in Europe.
 

"Historically it's very difficult to achieve a soft landing," said Steve Sosnick of Interactive Brokers. "It's easy for a soft landing to sneak up on you and become a hard landing. And that's what the market is very much afraid of right now."
The Dow Jones Industrial Average finished at 39,737.26, down 1.5 percent for the day and 2.1 percent for the week.
"And just like that, the market is worried about the US economy suffering a hard landing," said Briefing.com analyst Patrick O'Hare.

Economists debate the size of rate cuts

Over the weekend, a group of economists from the bank cut the probability of the U.S. entering a full-fledged recession in the next year from 25% to 20%. After the unemployment rate unexpectedly jumped to 4.3% at the beginning of August, triggering a market selloff, they had upped the odds from 15% to 25%.

For economists at Goldman Sachs, recent improvements in retail sales and unemployment data suggest that the economy is gaining strength, prompting them to cut their probability of a recession in the U.S. within the next year from 25% to 20%.

 

“We have now shaved our probability from 25% to 20%, mainly because the data for July and early August released since August 2 shows no sign of recession," Goldman Sachs chief U.S. economist Jan Hatzius said in a note on Saturday, as reported by Reuters. “Continued expansion would make the U.S. look more similar to other G10 economies, where the Sahm rule has held less than 70% of the time.”

Hatzius added that if the August jobs report set for release on Sept. 6 “looks reasonably good, we would probably cut our recession probability back to 15%, where it stood for almost a year” before a revision on Aug. 2.

The economists also said they have become “more confident” that the Federal Reserve will cut interest rates by 25 basis points at their September policy meeting, “although another downside jobs surprise on September 6 could still trigger a 50bp move.” 
 

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