- by William Briggs
- The Guardian
- Issue #2114
Photo: Nick Youngson – Pix4free.org thebluediamondgallery.com/financial05/r/recession.html (CC BY-SA 3.0)
Is the United States heading into an economic recession? The recent Wall Street upheaval and the panic that spread to global stock markets suggest that the fear is real. If the markets were ‘jittery,’ many bourgeois economists and economics writers were in serious melt-down mode. Recession was predicted by some, a ‘soft-landing’ by others. Australia was to see a significant rate cut to save us and then the RBA kept rates on hold, no doubt to save us. Markets lost billions and then regained ‘most’ of the losses. The anarchy of capitalism was on show and such a show it is.
The fear of recession was based on what is known as the ‘Sahn rule,’ named after Claudia Sahn, a former Federal Reserve economist. If the unemployment rate, based on a three-month average, is half a percentage point above its lowest point for the past 12 months, then the economy is said to have dipped into recession. The Sahn rule has accurately forecast every recession in the US economy for the past 50 years. The latest ‘jobs report’ in the USA showed that the Sahn boxes had all been ticked. The result was a panic that spread around the world.
The fragility of the US economy and the rise in unemployment makes a mockery of the repeated claims over the past months of the health of the American economy. The US leads the G7 economies. In January 2024, the American Department of Commerce reported that their GDP growth rate was “exceeding expectations.” The rate of growth was explained as being due to an increase in manufacturing and in consumer spending. This was linked to a rapid rise in employment.
The optimistic statements on manufacturing figures are contradicted by statistics coming from ING economists. Output has stalled over the past two years. The Institute for Supply Management released figures that show manufacturing in the USA actually shrinking over the last 16 months.
It is a similar story in relation to employment. The panic that shook Wall Street just a week ago was influenced by a downturn in jobs and a rise in unemployment that is central to the Sahn rule thesis.
While the catastrophe of a US recession might not yet have materialised, the fear is real. Economists at Goldman Sachs, not known for their extravagant predictions, have raised the economic threat level. They predict that the likelihood of the United States economy moving into recession in the next 12 months has risen from 15 per cent to 25 per cent. The working class, who will suffer the most will be hard-pressed to tell the difference between near-recession and recession.
The globalised capitalist world shares the fragility of the US economy was shaken by the events that shook Wall Street.
The South Korean market dropped by 8.77 per cent. Japan recorded a loss of 12.4 per cent. Almost $100 billion was wiped from the value of Australian market. The 3.7 drop in Australia was the biggest single loss since the COVID lockdown.
Interestingly, the Shanghai and Hong Kong stock exchanges suffered minimal damage. Speaking to the Chinese media, Yang Delong, chief economist at the Shenzhen-based First Seafront Fund commented that “despite the widespread downturn in global markets [China’s] resilience against declines indicates that previous adjustments have been quite sufficient.” In the midst of the turmoil, the Chinese yuan rose significantly against the dollar. This has led to speculation by Chinese economists that a strong yuan could well attract inflows of foreign capital. Capital, after all, knows no borders.
The global economic outlook is not especially healthy. The World Bank estimates that growth will be just 2.6 per cent in 2024 and 2.7 per cent in 2025. These figures did not factor in the potential recession that is facing the world’s biggest economy and the ‘best performing’ economy among G7 countries. Growth for Japan is estimated to be 0.7 per cent. This is the same figure for the EU zone economies. The USA was predicted to grow by 2.5 per cent, which is becoming increasingly uncertain. China, with a growth rate expected to be at or around 5 per cent, remains the only actually stable economy and is effectively keeping the global economy, from recession.
The refusal by so many bourgeois economists and Western governments to accept this simple fact is astonishing. Individual capitalist investors, companies, and corporations, however, do acknowledge the truth, which is why China is being seen as an increasingly better place to invest. The US economy might or might not have an actual recession but it is in retreat. If it is in retreat, the faltering economies of the Eurozone, Japan, Australia, and all the capitalist world are in grave danger.
