Cease Utilizing the Sahm Rule Recession Indicator for States

Economists Warn of impending Recession as Unemployment Rates Surge in Several US States

The United States has been on a recession watch for the past two years, despite a brief reprieve at the beginning of 2024. 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 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 simple recession indicator known as the Sahm rule, which was developed by an economist. The rule states that 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 makes up 11% of the labor force alone.

The concerns about a potential recession are heightened by the fact that the unemployment rate has been rising in several states. This has led some economists to believe that a recession may be imminent if not already underway. It is crucial to monitor these indicators closely in the coming months to understand the true state of the economy and prepare for any potential challenges ahead.


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