Overnight, US tech stocks encountered the darkest day in the past year and a half: Nasdaq closed down 3.6%, the largest drop since the end of 2022, and Tesla fell 12%, Nvidia fell nearly 7%, and Google fell 5%.

Behind this are, on the one hand, Tesla and Google's initial loss in the Q2 earnings season of the US stock market's "Seven Sisters," and on the other hand, a series of data released on the same day implying that the US economy may be heading for an inevitable "hard landing."

Overnight data showed that the Markit Manufacturing PMI for July in the United States shrank unexpectedly, hitting a seven-month low, and U.S. new home sales in June fell for the second consecutive month to the lowest annulus total since November last year. The situation in Europe is also not optimistic, with the German economy's business climate falling back below the "boom-bust line" for the first time in four months, and French manufacturing output declining for the 26th consecutive month.

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

The yield curve has been inverted for two years, and the unemployment rate has signaled a recession. Will second-quarter GDP bring bad news?

The most common recession indicator, the yield curve inversion, has lasted for the longest period in history of two years. However, the economic recession did not occur as expected.

The Sahm rule, a recession prediction method based on changes in the unemployment rate, has recently released some unfavorable signals.

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

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

Another commonly used rule is that two consecutive quarters of GDP contraction is equivalent to an economic recession, and the market is focusing on whether the second-quarter GDP to be released on Thursday will sound a red light warning.

Wall Street currently generally expects the US second-quarter actual GDP annualized quarter-on-quarter initial value to rise from 1.4% in the first quarter to 2%, and the economy is still growing positively.

Do the indicators of economic recession fail?

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

According to the latest statistics from the US Bureau of Labor Statistics, the number of temporary employment positions has decreased by 0.515 million jobs since reaching its peak in March 2022, a drop of 16%. However, total employment is still rising, which is different from the situation before the economic recession in the past.

Chicago Federal Reserve President Austan Goolsbee previously said, "The drop in temporary employment may no longer directly reflect the economic situation. Shortages of labor during the epidemic have changed employers' reliance on temporary workers."

Claudia Sahm, a former economist at the Federal Reserve, also warned that "the business cycle triggered by the epidemic is very unusual, and traditional recession prediction methods may no longer be effective."

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

Editor/ping