After the latest jobs report came in a bit weaker than expected, economists hustled to assure everybody, "Don’t worry, it’s not a recession, at least not yet, anyway."

Excuse me, but wut?

Why is anybody talking about a recession? Job growth under Joe Biden has been at record highs, and that continues. The economy didn’t shed jobs in July, which is what happens during downturns. It added 114,000 new jobs. That was less than the forecast of 175,000, but employment forecasts have been errant darts since COVID scrambled the economy all the way back in 2020. By the formal definition of a recession, we're nowhere close.

Yet recession talk is suddenly everywhere because a rising unemployment rate has triggered a recession predictor that has been uncannily accurate in the past. The “Sahm Rule” measures acceleration in the unemployment rate, which has jumped from a low of 3.4% last year to 4.3% now. Unemployment is still low. But the Sahm Rule says the pace of increase in recent months would normally mean we’re in a recession now.

This time is (probably) different. Even Claudia Sahm, the economist who created the rule, thinks so. “Do I think we are in a recession right now? No,” Sahm told Yahoo Finance on Aug. 2. “We have a really healthy economy; it’s just not pointed in a good direction.”

Investors freaked out anyway. Stocks fell nearly 2% the day of the job news, with the S&P 500 index down 5.7% from its mid-July peak. The Nasdaq tech index is down 10% from its July peak and has now entered a correction. Since mid-July, the VIX volatility index has leaped from nothing-to-see-here levels in the teens to 29, the highest mark in almost two years.

What’s really going on is a shift in narrative and outlook.

For much of the last year, inflation has gradually subsided while spending and hiring have held up. That suggested the Federal Reserve might stick a “soft landing” by raising interest rates to cool the economy and torpedo inflation without causing a recession.

Now there are doubts. “Labor market cracks raise risk of a hard landing,” Capital Economics declared in an Aug. 2 analysis. In addition to the weak job numbers for July, the forecasting firm pointed to rising numbers of unemployment claims and a manufacturing slowdown as signs the economy may be weakening more than desired.

That faster slowdown changes the outlook for Fed rate cuts, which now seem certain starting in September and could occur more aggressively than prior expectations if there are additional signs of weakness. The question now is whether the Fed has waited too long to cut rates and could end up causing a recession after all.

For now, the most likely outcome seems to be that everything will settle down, there will be no recession anytime soon, and Fed rate cuts will end up providing just the relief homebuyers and other borrowers have been waiting for. After all, other recession indicators have come and gone with initial alarm morphing into complacency.

One example: The yield curve has been inverted for two years, and that’s normally a strong recession predictor — except now. In the fall of 2022, Bloomberg cited the inverted yield curve while predicting a 100% chance of recession within a year, a prediction that was 100% wrong.

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Another example: There were two consecutive months of negative GDP growth at the start of 2022, and again, no recession. And yet another: The leading economic indicators have also been flashing recession, leading nowhere but to bad conclusions. If one of these recession indicators does turn out to be right, it will be the broken clock that tells the correct time twice a day.

The stock market sell-off of the last couple of weeks has been violent but probably overdue. Stocks have been on a tear since October 2022, and by many metrics, they got overvalued. A bit of air coming out of stocks won’t trigger a recession. Meanwhile, the much-maligned Fed isn’t impotent, and it still has considerable power to keep the economy above water.

The best news may be that “inflation is now truly yesterday’s story,” as economist Robin Brooks of the Brookings Institution tweeted on Aug. 2. Biden, in his usual statement after the jobs report, bragged about job creation during his presidency, then offered his stock line, “Prices are still too high.” Biden and his replacement as Democratic presidential nominee, Kamala Harris, need to keep saying that, lest they seem out of touch to voters still frustrated with the high cost of food and rent.

But inflation is not likely to be a problem for the next president, assuming he or she doesn’t do something foolish to revive a monster that’s returning to hibernation. The open question for Harris is whether voters will give her a pass on inflation, which has been Biden’s biggest economic problem.

Harris is clearly riding high on a gusher of enthusiasm about her candidacy, which has led to record-breaking fundraising for her campaign and a sharp increase in Democratic election odds. And her opponent Donald Trump is stumbling over oafish racial slights instead of attacking Harris on the economy.

As long as Harris isn’t the one trying to convince voters there’s no recession, disappointing job numbers and all their consequences may still be a net positive for the incumbent party.

Rick Newman is a senior columnist for Yahoo Finance. Follow him on X at @rickjnewman.

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