Economic Uncertainty Looms as Rising Unemployment Signals Possible Recession in Multiple U.S. States

Cease Utilizing the Sahm Rule Recession Indicator for States

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The United States has been on a “recession warning” for the past two years, and despite a brief period of calm at the beginning of 2024, alarms are once again going off. This time, the concerns are not related to usual indicators such as an inverted Treasury market yield curve or low consumer and business sentiment. Instead, some economists believe that rising unemployment rates in several states could signal that a recession is imminent or already underway.

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 recent data showing that unemployment rates have been rising in several states. This trend has led some economists to believe that a recession may be imminent if not already underway. To fully understand what’s happening and prepare for any challenges ahead, it’s important to closely monitor these indicators in coming months.

In conclusion, while there may be different indicators used to predict a recession, it’s clear that economic conditions remain precarious as rising unemployment rates continue to impact various regions across America. Close monitoring of these trends will help policymakers and businesses make informed decisions about their future plans and investments.

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