The recent rise in the U.S. unemployment rate that triggered renewed recession concerns was likely a false positive, says Fitch Ratings.
Last week’s U.S. jobs data for July, which saw employment numbers fall well below consensus and the jobless rate rise by 0.2 points to 4.3%, sparked fears that the U.S. economy was facing a recession.
However, in a new report, the rating agency said the rise in the jobless rate was largely driven by workers joining and re-joining the labour force, rather than meaningful job losses.
“Permanent job losses are still contained, only making up less than 20% of the increase in the unemployment rate,” it said.
“While hiring rates have slowed meaningfully, layoff rates remain close to 20-year lows,” noted Olu Sonola, U.S. head of economic research for Fitch.
The report’s apparent recession signal, based on the so-called Sahm rule, which indicates that the economy is entering recession when the three-month moving average for the unemployment rate rises by 0.5 percentage points from its low over the past 12 months, likely wasn’t valid, Fitch suggested.
“Despite traditionally being a reliable signal of prior recessions, the July triggering of the Sahm rule was somewhat unusual because it was driven by increased labour supply. This likely means it was a false positive,” Sonola said.
Fitch said it expects the jobless rate to rise to 4.4% by the end of the year, as “demand continues to slow in response to the lagged effect of higher interest rates and tightening credit conditions.”
Against this backdrop, economic growth is expected to come in at 2.1% for 2024, it said.