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Unemployment Rates: A New Recession Warning for the US Economy

Cease Utilizing the Sahm Rule Recession Indicator for States

Unemployment Rates: A New Recession Warning for the US Economy

In the past two years, the US has been on a “recession warning,” despite a brief period of calm at the beginning of 2024. Now, alarms are once again sounding, and this time, the concerns are not related to the usual indicators such as an inverted Treasury market yield curve or low consumer and business sentiment. Instead, some economists are turning their attention to rising unemployment rates in several states as a potential sign of an impending recession.

The warning is based on a recession indicator known as the Sahm rule, developed by an economist. The rule is straightforward: if the three-month average of the unemployment rate is half a percentage point or more above its low in the previous 12 months, the economy is in a recession. Applying this rule to individual states reveals that 20 of them should be in a recession. These states account for over 40% of the US labor force, including California, which alone makes up 11% of the labor force.

The concerns about a potential recession are heightened by the fact that unemployment rates have been rising in several states. This has led some economists to believe that a recession may be imminent if not already underway. It is essential to monitor these indicators closely in the coming months to understand the true state of

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