Economists say a 'soft landing' is still possible.

• A weaker-than-expected jobs report on Friday fueled fears of a U.S. recession.
• The "Sahm rule" was triggered in July due to an increase in the national unemployment rate, indicating a possible recession in the U.S.
• Despite some concerns, the economy appears to be strong, according to economists.

In recent days, the S&P 500 index suffered a 3% loss due to recession fears, marking its worst decline in almost two years.

Concerns about the U.S. economy's stability intensified on Friday due to weaker-than-expected job data, which led to speculation that the Federal Reserve may have made a mistake in its pursuit of a "soft landing."

The Fed's interest-rate policy charted a soft landing, taming inflation without causing an economic downturn.

On Friday, the U.S. unemployment rate experienced a significant increase, according to federal data. This caused concern among investors, who believed it indicated a "hard landing" was becoming increasingly probable.

The likelihood of a recession occurring in the next year remains low, according to economists.

A soft landing is still possible, they assured.

Mark Zandi, Moody's chief economist, stated that in his opinion, the most probable outcome is a soft landing: the economy manages to avoid an economic recession.

Jay Bryson, the chief economist at Wells Fargo Economics, predicts a soft landing as his "base case" forecast.

Some signs of economic weakness have caused recession worries, he said.

""I believe the fears are legitimate," he stated."

To avoid a recession, the Fed must begin lowering interest rates, according to Zandi and Bryson.

High borrowing costs increase the risk of a recession, it was stated.

Why are people freaking out?

The monthly jobs report released by the Bureau of Labor Statistics on Friday caused a significant stock-market decline, according to Bryson.

In July, the unemployment rate increased to 4.3% from 4.1% in June and 3.5% in the previous year, according to the data.

By historical standards, the 4.3% national jobless rate is considered low, economists stated.

The steady increase in the past year has led to the implementation of the "Sahm rule," which suggests that the U.S. economy may already be in a recession.

The Sahm rule is activated when the three-month moving average of the U.S. unemployment rate is 0.5 percentage point (or more) higher than its lowest value in the past 12 months.

In July, the Sahm rule recession indicator reached 0.53 points, which exceeded the threshold.

Economists said that the annual odds of a recession occurring, on average, is around 15%.

Zandi predicts the likelihood of a recession occurring in the next year to be approximately 1 in 3, which is significantly higher than the historical average. On the other hand, Bryson forecasts the probability to be between 30% and 40%.

The Sahm rule may not be accurate this time

Zandi believes that the Sahm rule may not be a reliable recession predictor during the current economic cycle.

The unemployment rate is calculated as the percentage of unemployed individuals in relation to the total labor force. As a result, fluctuations in both the number of unemployed and the size of the labor force can impact its value.

Amid stock market volatility, an economist warns that this labor data trend is a 'warning sign.' However, now is the time to buy stocks 'on sale.'

Historically, the Sahm rule has been triggered by a decrease in worker demand, resulting in businesses laying off employees and an increase in the number of unemployed individuals.

The increase in labor supply is the primary reason for the rise in the unemployment rate over the past year, according to Bryson.

The unemployment rate increased due to more Americans entering the job market and searching for work.

The labor force expanded by 420,000 individuals in July compared to June, according to Bryson, who deemed it a "significant" increase.

The layoff rate in June was 0.9%, which is the lowest on record since 2000.

'The flags are turning red'

Concerns about a broader slowdown in the job market have been expressed by economists, they said.

The unemployment rate has reached its highest level since the fall of 2021, as hiring has slowed and the share of workers quitting for new gigs has decreased. Claims for unemployment benefits have gradually increased.

According to Nick Bunker, economic research director for North America at job site Indeed, the labor market is in a precarious position.

"Red flags have replaced yellow ones in the labor market data over the past few months," he stated.

Other positive signs

Despite some negative indicators, there are positive signs that suggest the economy remains resilient.

Across the board, Zandi said, consumer spending, adjusted for inflation, remains robust.

If consumers continue to spend, the U.S. economy will remain stable, according to Zandi.

The financial health of households in the economy is still good overall, according to Bryson.

There is a high probability that the Fed will reduce interest rates in September, relieving some strain on households, particularly lower-income earners, according to economists.

""This is not September 2008 or March 2020, where the situation required immediate action," Bryson stated."

He remarked that some indications suggest the economy is strengthening.