Unemployment Rates Indicate Possible US Recession: A Closer Look at the Sahm Rule and Economic Trends

Cease Utilizing the Sahm Rule Recession Indicator for States

In recent years, the United States has been on a “recession warning,” despite a brief respite at the beginning of 2024. This time, however, 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 pointing to rising unemployment rates in several states as a sign that a recession is imminent or already underway.

The warning is based on a recession indicator known as the Sahm rule, developed by an economist. The rule is simple: 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 in several states have been steadily increasing. Some economists believe that if these trends continue, it could indicate that a recession may already be underway or imminent.

It’s important for policymakers and businesses to closely monitor these indicators moving forward to get a better understanding of where we stand with our economy and prepare for any challenges ahead.

In conclusion, while there was hope at the beginning of 2024 that we might see an end to our economic downturn, recent developments suggest that we may be facing another recession soon. Rising unemployment rates in several states along with other economic indicators point towards this possibility. It’s crucial that policymakers take action now to mitigate any potential negative effects this could have on our economy and citizens.

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