US Close To Recession Warning As June Jobs Report Shows Rising Unemployment

The United States is close to breaching the threshold for the Federal Reserve’s “Sahm Rule” according to data from the June jobs report.

The Data: The Sahm Rule, named for economist Claudia Sahm, is a heuristic measure used by the Federal Reserve to determine whether the U.S. economy is in a recession. The rule has correctly predicted every recession since 1950 with only one false positive in 1959.

The Sahm Recession Indicator signals the start of a recession when the three-month moving average of the unemployment rate rises by 0.5% or more relative to the minimum of the three-month averages from the previous 12 months.

The Sahm indicator reached 0.43% in June, according to the Federal Reserve Bank of St. Louis. The data is sourced from Friday’s Bureau of Labor Statistics June jobs report. The number has steadily increased since last year. A post on X illustrated the increase in a graph.

Why it Matters: Economic heuristics such as the Sahm Rule help economists shape monetary policy. Leading recessionary indicators could induce the Federal Reserve to cut interest rates to de-strain the U.S. economy.

According to the CME Group, the market currently gives September rate cuts a 75% probability.

One indicator does not necessarily portend a recession. Sahm herself has said that the rule is “is an empirical reality, not a law of nature.” The indicator’s approaching 0.5% is a warning sign, however, for the U.S. as it remains in murky economic waters.

Also Read:

• Gold Maintains Upward Trend As Market Anticipates US Jobs Data

Photo: Shutterstock