One gloomier warning comes from economists Pascal Michaillat and Emmanuel Saez at the University of California.

Based on the recent rise in unemployment and fall in job vacancies compared with historical data, they suggest there is a 40 per cent chance the US economy is already in recession – and that it may have begun as long ago as March.

The unemployment rate jumped to 4.3 per cent in July, the highest rate since 2021, while the number of job vacancies continued a downward trend as the post-lockdown boom cools off.

Any sign of a recession is not yet visible in the GDP figures, which take longer to reflect turning points in the economy, and which in any case take longer to be compiled.

But Paul Mortimer Lee, research fellow at the National Institute of Economic and Social Research, says “the risks are definitely mounting”.

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“Once labour markets turn, they tend to turn quite significantly, and things get worse quicker than they get better,” he says.

“If you are going to hire a thousand people, it takes quite a bit of time. To sack them, you just send a text message to say, ‘You are done, close the door behind you.’”

So far, the US economy has been able to withstand the Federal Reserve’s 5.5 per cent interest rates – unchanged since July 2023 – reasonably well.

Home owners have locked in low mortgage rates and the government has been on an extraordinary borrowing binge – something Harris promises to continue with heavy spending on green initiatives.

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But economists warn this resilience is unlikely to last.

The crunch in stock markets threatens confidence, for instance, while geopolitical instability in the Middle East is a danger to employers’ plans. Donald Trump will hope this can play into his hands, as markets performed strongly in his first term, bolstered by corporate tax cuts.

Critically, Mortimer Lee warns, the Fed has been too slow to see the slowdown coming and will not be able to react in time.

“If they cut rates tomorrow, it will take a year before that has any effect on the economy,” he says. “The Fed seems to be thinking they do not really know the economy is slowing, and they will believe it when they see it.

“So purposely they have put themselves miles behind the game.”

The Fed is already in a difficult spot as Trump has raised the prospect of intervening to directly influence interest rates himself, should he win the presidency.

Mortimer Lee urges officials, led by Jerome Powell, to cut by half a percentage point either in September’s meeting or before.

“They are probably going to have to cut like lunatics because the economy, when it turns – and I think it is turning – will turn quite viciously,” he says.

Not everyone agrees. Jason Furman, professor at Harvard and former chairman of Barack Obama’s Council of Economic Advisers, says risks are growing but that financial markets may have got carried away last week.

“Financial markets are famous for having called nine of the last five recessions, so I would not place much weight on them as a predictor of recession and even less weight on them as a cause,” he says. “Economists are not much better.

‘If they cut rates tomorrow, it will take a year before that has any effect on the economy.’

Paul Mortimer Lee, research fellow at the National Institute of Economic and Social Research

“Right now the risks seem elevated, but we just don’t know enough about the complex and often random workings of the economy to put the chances at much higher than one in four. Regardless, it is clearly the case that recession is now a bigger risk than continued high inflation.”

Ken Rogoff, another Harvard professor, similarly puts the odds of a recession in the next 12 months at 25 per cent, not an unusually high level.

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Adam Posen, president of the Peterson Institute for International Economics, says: “I do not believe that the US is in a recession, and that near-term recession risk is only slightly elevated.

“The slight acceleration in unemployment and further decline in [job] quits makes me a little less confident in this call, of course, because that could be the start of an inflection point in unemployment trend upward.”

So-called job quits are an important indicator of the strength of the jobs market. When people are confident, they are more likely to quit their jobs, knowing they can easily get another one. The recent drop in this suggests a lack of confidence among job seekers that they can find another easily.

The economy is still adding jobs, even if the pace has reduced. Employment and unemployment have risen simultaneously, in part because of a large wave of immigration, adding workers to the economy. It means the rise in unemployment is not solely due to layoffs, which might usually be a recession indicator.

The distinction between the two will be critical for Harris’ odds of winning the White House.

The Telegraph, London

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