All articles tagged with #sahm rule
Moody's Analytics warns that the US economy is nearing a recession threshold, with the unemployment rate rising to 4.6% and the Sahm Rule close to triggering a recession signal, amid weak job growth, declining demand, and potential impacts from AI and policy factors.
The Sahm rule, an indicator designed to predict recessions, is now further from triggering after the US unemployment rate dropped to 3.7% in November. The rule compares the three-month average of the unemployment rate with the lowest average from the past year, and if the difference is 0.5 percentage point or greater, it triggers a recession warning. While the rule has historically been accurate, its creator, Claudia Sahm, believes it may not trigger this cycle due to workers returning to the workforce and a rebalancing of supply and demand dynamics in the labor market.
The recent rise in the unemployment rate in the US has sparked concerns of a possible recession, as it is a half percentage point higher than its recent low. However, the Sahm Rule, which states that such a rise signals the beginning of a recession, may not apply this time. The increase in the unemployment rate is largely due to more people entering or re-entering the workforce, rather than job losses. Additionally, personal spending has remained strong, boosting GDP. However, the Federal Reserve's aggressive interest rate hikes and growing credit card debt raise concerns about the sustainability of this spending. While many forecasters still predict a recession, there is no rule saying it is inevitable.
The rise in unemployment to 3.9% last month brings joblessness close to triggering the Sahm Rule, a reliable predictor of recessions. The rule, created by former Federal Reserve economist Claudia Sahm, defines a recession as a half-percentage point or more increase in the three-month moving average of the unemployment rate relative to its low in the previous year. While unemployment has risen, it has not yet triggered the rule, according to Sahm.