The lower than expected non farm payroll data for July in the United States has intensified concerns about an economic recession, causing financial markets to struggle. This further indicates that the US economy continues to cool down and increases the possibility of the Federal Reserve cutting interest rates in September.

An analyst from Secure Digital Markets said, "The July employment report was disappointing, raising concerns that the economy may fall into recession. US job growth was lower than expected, with non farm payrolls only increasing by 114000, far below the expected 176000. The unemployment rate climbed to 4.3%, the highest level since October 2021, surpassing the forecast of 4.1%

Economists are now warning that the Federal Reserve may keep interest rates too high for too long, leading the United States onto a path of recession. This has led analysts from JPMorgan and Citibank to predict that the Federal Reserve will cut interest rates three times by the end of 2024, including 50 basis points each in September and November, followed by a 25 basis point cut in December.

The market's response to low employment rates seems to be somewhat overreacting, but widespread concerns are not unfounded, as the 4.3% unemployment rate triggered a key recession indicator - the Sam's Rule.

According to Investopedia, the Sam Rule (named after Claudia Sam, a former macroeconomist at the Federal Reserve) states that the early stages of an economic recession "indicate that the three-month moving average of the US unemployment rate is half a percentage point or more higher than the lowest three-month moving average unemployment rate in the past 12 months.

When asked in an interview last Friday whether the Sam's Rules would take effect at this time, Claudia Sam confirmed that it did indeed trigger it. Sam added that although she believes the United States is not currently in a recession, "we are not moving in a good direction.

Sam pointed out that although this is just an indicator, other data points also indicate that the trend of economic weakness has intensified in recent months, and the 4.3% unemployment rate precisely confirms that the economy has experienced a high-level slowdown.

Jag Kooner, Head of Derivatives at Bitfinex, agrees with this assessment.

He pointed out, "The increase in labor force participation rate (especially immigration) and the persistent mismatch between job seekers and existing positions have also exacerbated the unemployment situation. These complex factors, coupled with the inverted yield curve (another economic recession signal), have created an atmosphere of uncertainty

He added that although the number of layoffs has increased, "it is still at a historical low. The Federal Reserve has taken a cautious attitude in dealing with persistent inflation, keeping interest rates high. However, as economic indicators show signs of weakness, the possibility of interest rate cuts in the near future is increasing

Daily chart of the US dollar index