US RECESSION: A Fact or Rumour...

Few days back one of the hottest topics all over the internet and news channels was the approaching recession which would affect the world’s super economy USA. What really happened ?? Why was this chaos ?? 

Let’s see this in detail and dive into it…

Unemployment

It is being seen by the economist that the unemployment rate in US is continuously increasing this rate stood at 4.3%[three year high] in the end of the July month. The reason for increasing unemployment is that many employers in the US market are not willing to offer jobs to people due to the high interest rates. This increasing unemployment rate triggered “Sahm rule”.

Sahm Rule

“Sahm rule” is named after American economist Claudia Sahm which says that if the unemployment rate over three months is half a percentage point higher than the lowest level over the past 12 months then the country is at the beginning of recession. Whereas for US this average stood at 4.1% the lowest level was 3.5%.

Another reason which increased a fear among the civilians was the fact the fed last to last week voted for “not to cut interest rates”

Is this fear of recession true??

RBI governor Shaktikanta das says that it’s too early to talk about recession and take necessary steps. As the fear among the civilians rose due to the crash in the stock market many economist claimed that it is a fact that the US economy is slowing down but a country goes into the recession only if it’s GDP goes into negative growth. Whereas us GDP for the quarter April-June stands at 2.8% its very unlikely to slip into negative so quickly. Even Ms Sahm the inventor of the rule says, “we are not in a recession now but the momentum is in that direction”.

Impact of this Rumours on India

We all know that as US is one of the biggest economy in the world any impact in US market has a similar reaction all over the world. The same thing happened in India as the news of rumours spread on august 5 [Monday] nifty 50 and mid and small cap indices fell for almost 3%. Sharp loses caused investors to lose nearly 15 lakh crores in single session. Besides the stock market, as US is one of the biggest export partner of India it created a lot of tensed situation.

What in the future??

It is very unlikely that US will hit with a recession as this alarming situation will help US federal reserve to cut down the interest rates [even the discussion for reducing it in September is going on] and necessary steps to increase the employment will be taken…