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Is USA heading towards recessions? What data says ?

08-Jan-2025 by Admin 1015

Is USA heading towards recessions? What data says ?

Is USA heading towards recessions? What data says ?

As of January 2025, the U.S. economy exhibits mixed signals regarding the likelihood of an impending recession.

Economic Growth

In the third quarter of 2024, the U.S. economy expanded at an annualized rate of 3.1%, marking the strongest quarter of the year. This growth was primarily driven by robust consumer spending, which contributed nearly 2.5% to the GDP increase. The economy appears on track for another year of over 2% growth.

Labor Market

Despite the positive GDP figures, the labor market has shown signs of softening. The unemployment rate rose to 4.3% in July 2024, triggering the Sahm Rule—a historical indicator of recessions. However, some economists caution that this may not accurately signal a recession in the current context.

Recession Probabilities

Forecasts vary regarding the probability of a recession:

J.P. Morgan Research increased the likelihood of a U.S. recession starting before the end of 2024 to 35%, up from 25% earlier in the year. They maintain a 45% chance of a recession by the end of 2025.
The New York Federal Reserve's recession probability model suggests a 42% chance of a U.S. recession within the next 12 months.

Inflation and Monetary Policy

Inflation has moderated from its mid-2022 peak of 9.2% to 2.7% in November 2024. In response, the Federal Reserve reduced the federal funds target rate by 1% between September and December 2024. The Fed now anticipates two rate cuts in 2025, scaling back from the previously projected four, indicating a cautious approach to monetary policy amid ongoing economic growth.

Conclusion

While the U.S. economy continues to grow, certain indicators, such as the rising unemployment rate and increased recession probabilities from reputable sources, suggest caution. The situation remains fluid, and close monitoring of economic indicators is essential to assess the potential for a recession in the near future.

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