SAHM RULE EXPLAINED WHICH TRIGGERS RECESSION

Is Recession Coming???

The Sahm Rule, first printed in 2019 and formulated by Claudia Sahm, then an economist at the US Fed's Board of Governors states that when the most recent three-month average unemployment rate hits 0.5% greater than the lowest unemployment rate of the last 12 months, the US is in, or is about to be in, a technical recession.

US Unemployment Rate is at 4.20%, compared to 4.30% last month and 3.80% last year. This is lower than the long-term average of 5.69%.

The US Unemployment Rate measures the percentage of total employees in the United States that are a part of the labor force, but are without a job. Historically, the US Unemployment Rate reached as high as 10.80% in 1982 and 9.9% in November of 2009. Both of these times were notable recessionary periods. As you can see in the image.

Whenever the Unemployment rate rises above 0.5% for more than 3 Consecutive months it triggers a recession, and the past 3-month unemployment average rate is 4.13%.

SO RECESSION HAS ARRIVED?

The answer varies on multiple factors, but it mainly calculates the labor data and the supply of labor is growing faster than demand, So far this year, the U.S. has 1.15 million new entrants to the labor force--and the number of unemployed workers has risen by around 1.04 million since January. It's not layoffs, in other words, but new job seekers that are driving the unemployment rate higher. "Weak labor demand is a recession indicator, but strong labor supply points to a soft landing”.

Morgan Stanley notes they still expect more than 2.5 million immigrants next year, on top of the more than 3 million surges this year and last. That compares with the 1.3 million average in the decade pre-Covid, in simple words “Job growth is dissipating”. The unemployment rate will keep rising unless companies start to hire more workers.

Claudia Sahm in her words says, “Our understanding of what is happening right now is so very challenged and what that means is — and I’ll be the first to say it as someone who has a rule attached to her name — don’t just rely on one tool”.

So we can’t say the recession has arrived or has been triggered as there are multiple factors to it, Thank you for reading.