For over two years, the United States has been on a “recession warning,” with concerns about a potential recession continuing to grow. Despite a brief period of calm at the beginning of 2024, the alarms are once again going off. 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 looming or may already be here.
The warning is based on a recession indicator known as the Sahm rule, which was 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 the unemployment rate in several states has been rising. This has led some economists to believe that a recession may be imminent if not already underway. It is important to monitor these indicators closely in the coming months to understand the true state of the economy and prepare for any potential challenges ahead.
In conclusion, while there have been many indicators used to predict economic downturns over time, some experts believe that rising unemployment rates could be another sign of an impending recession. As such, it’s important for businesses and individuals alike to stay vigilant and prepare for any potential challenges that may arise ahead.
