Yesterday, US technology stocks encountered the darkest day in the past year and a half: Nasdaq fell 3.6%, the largest decline since the end of 2022, Tesla plummeted 12%, Nvidia dropped nearly 7%, and Google fell 5% .

On one hand, the driving force behind it was that Tesla and Google lost their first battle in the Q2 earnings season of the S&P 500, and on the other hand, a series of data released on the same day suggests that the US economy may be heading for an inevitable "hard landing".

Overnight data showed that the preliminary value of the Markit manufacturing PMI in the United States shrank unexpectedly and hit a seven-month low in July, and US new home sales in June fell for two consecutive months to the lowest annual total since November last year. The situation in Europe is also not optimistic. Germany's economic climate fell back below the "boom-bust line" for the first time in four months, and French manufacturing output has declined for 26 consecutive months.

At the same time, some popular economic recession indicators, such as the yield curve, are continuing to sound the alarm.

Has the inverted yield curve been sounding the alarm for two years, and will the second quarter GDP bring bad news?

The most common recession indicator, the inverted yield curve, has been going on for the longest period in history for two years. However, the economic recession did not arrive as scheduled.

The Sahm rule, a recession forecasting method based on changes in unemployment rates, recently released some unfavorable signals.

According to the Sahm rule, when the average unemployment rate for 3 months increases by 0.5 percentage points compared to the previous 12 months, the economy may be in a recession state. As of June, this difference was 0.43 percentage points.

However, some analysts believe that the current change in the unemployment rate may be more affected by the changes in the post-epidemic labor market than by direct signals of economic recession.

Another commonly used rule of thumb is that if GDP shrinks for two consecutive quarters, it means economic recession, and the market is paying attention to whether the second quarter GDP to be released on Thursday will sound the red light alarm.

Wall Street currently generally expects that the real annualized quarterly initial value of US GDP in the second quarter will rise from 1.4% in the first quarter to 2%, and the economy is still growing positively.

Recession indicators are failing?

Traditional recession indicators, such as temporary employment rates and yield curves, have performed well in past predictions. However, the current economic environment seems to have greatly discounted the reliability of these indicators.

According to the latest statistics from the US Bureau of Labor Statistics (BLS), the number of temporary employment has decreased by 0.515 million jobs, a decrease of 16%, since hitting a peak in March 2022. However, the total number of employees is still increasing, which is different from before the economic recession.

"The decline in temporary employment may no longer directly reflect the economic situation. Labor shortages during the epidemic period have caused employers to change their reliance on temporary workers." said Austan Goolsbee, Chairman of the Chicago Federal Reserve.

Former Fed economist Claudia Sahm also warned that "the business cycle triggered by the epidemic is very unusual, and traditional recession forecasting methods may no longer be effective."

In addition, although US GDP shrank for two consecutive quarters in the first and second quarters of 2022, more comprehensive economic indicators, such as employment, personal income, and consumption, have not shown obvious signs of recession.

Editor/ping