Unemployment Flashes Recession Warning Signs: Why Some Experts Say This Time Is Different

The weak July jobs report released on Aug. 2 sent the markets into a sell-off. The SPDR S&P 500 ETF Trust SPY erased over 5% in a now-rare pullback before regaining ground on Tuesday and Wednesday.

While recent unemployment data points to a recession, many experts say this go-around is different.

The Data: Unemployment rose to 4.3% in July, the fourth straight month that unemployment increased. The report triggered the recessionary “Sahm rule” indicator.

A post on X relayed concerning data about historical recessions.

This is concerning:

The US unemployment rate has risen for 4 consecutive months, the longest streak since the 2008 Financial Crisis.

Over the last 75 years, every time unemployment rose for 4 consecutive months, the US economy entered recession.

The jobless rate has surged… pic.twitter.com/7P4Ghkwk3i

— The Kobeissi Letter (@KobeissiLetter) August 7, 2024

While history is not on the U.S. economy’s side, experts don’t think the market is fated to go into a recession.

Experts Weigh In: Claudia Sahm, the namesake of the Sahm rule, penned a Bloomberg op-ed on Wednesday warning against using her rule to extrapolate a future recession. She also urged the Federal Reserve to cut interest rates.

“The U.S. is not in a recession, despite the indicator bearing my name saying that it is,” she wrote. “The Sahm rule, which was triggered with Friday's weaker-than-expected jobs report, joins a long list of economic tools skewed by the unusual disruptions of the past four and a half years.”

Sahm tied weakening labor market numbers to a larger labor force driven by a historically significant immigration surge. She expressed a belief it could be an increase in supply driving an increase in unemployment. Typically, demand drives recessions.

“Unemployed entrants to the labor force (new or returning) accounted for about half of the increase. That's a notably higher share than in recent recessions, when most of the contribution came from unemployed workers who had been laid off temporarily or permanently. The current Sahm rule reading is likely overstating the weakening in demand and not at recessionary levels.”

Goldman Sachs increased its 12-month U.S. recession odds from 10% to a still-low 25% on Monday.

"We are hesitant to take the July jobs numbers as a new trend," Goldman analysts noted. They said that while the Bureau of Labor Statistics reported no discernible effect from Hurricane Beryl, there were indications of temporary factors affecting the labor market.

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