Morgan Stanley Disputes 'Sahm Rule' Recession Prediction - Soft Landing Expected
Morgan Stanley economists have challenged the accuracy of the 'Sahm Rule' recession indicator following the breach of its threshold in July. Despite the rule's signal of a recession, the experts believe that the current cycle may not align with its predictions due to an increase in the labor force.
Instead, Morgan Stanley favors the employment-to-population ratio as a more reliable indicator, which has not yet hit the 0.5% recession threshold like the Sahm Rule. Combining this with the Michaillat and Saez approach, the economists have devised the "Triumvirate Rule" to calculate a 22% probability of a recession starting.
While the indicators support a forecast of a soft landing for the economy, the Triumvirate Rule's breach of 20% historically has led to a 100% probability of a recession within 2 to 6 months. This signals a need for caution among investors to navigate potential economic downturns.
In conclusion, Morgan Stanley's analysis suggests that despite the conflicting signals from different recession indicators, a soft landing is expected for the economy. However, investors should remain vigilant and exercise caution as the possibility of a recession looms in the near future.