What is the “Sahm ​​Law” that shook the United States and the world’s financial markets?

2024-08-06 04:54:50

The biggest drop in points for the Tokyo Stock Exchange. While many Asian stock markets suffered heavy losses this Monday – and even the most significant collapse recorded in the Japanese capital – a law, which is called “Sahm” law, can explain the situation this.

“What’s causing it? A report on the US job that missed its target was so bad that not only jaws dropped, but stocks and bond collections on Wall Street, commented Stephen Innes of the management company of issue, SPI Asset Management. In this report on employment in the United States, a worrying finding: an increase in the unemployment rate to the level of an epidemic and weak job growth in the private sector in 16 months.

What does “Sahm’s law” say?

“Sahm’s Law” was created by Claudia Sahm, a former economist at the United States central bank and the White House. This law states that the American economy enters a recession – that is, a fall in the Gross Domestic Product (GDP) for at least two consecutive months – when the average of the last three months of the unemployment rate is higher by 0.5 percentage points ( 50). basis points) or the lowest level in the last twelve months.

The “positive meaning” indicator, which has no “scientific basis”, recalls Florian Ielpo, head of economic research at Lombard Odier IM, thus showing 0.53 percentage points in July 2024.

Since the publication on Friday of the US unemployment figures, which increased more than expected to 4.3%, the highest unemployment rate since October 2021, the markets “made it clear that we’re going to have a recession” and they’re going into the red, he added.

The law has flaws

Despite these figures, Claudia Sahm herself doubts that her government will be useful this time: “I am not afraid that we are currently in a recession”, he told the American magazine Fortune, in an interview published last Friday. “No one should panic now, even if it seems that way to some,” because the main indicators of our economy are “still very good.”

The chairman of the Federal Reserve of the United States, Jerome Powell, also sought to reassure, saying at a press conference on Wednesday that Sahm’s law is a “quantitative measure” and that it is “not like an economic law that tells you that something is from. happened.”