Is a Recession on the Horizon? Experts Warn of Potential Economic Slowdown Based on Rising Unemployment Rates

Cease Utilizing the Sahm Rule Recession Indicator for States

In recent years, the United States has been on high alert for a recession. Despite a brief period of calm at the beginning of 2024, alarms are once again sounding. This time, however, the warnings are not coming from 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 may be imminent.

The warning is based on a simple but powerful recession indicator known as the Sahm rule. 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 alone which makes up 11% of it.

The concerns about a potential recession are heightened by the fact that unemployment rates have been rising in several states. 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.

For instance, if we take California alone, which accounts for over 11% of U.S labor force, it’s clear that rising unemployment rates there should be taken seriously as it could trigger a ripple effect throughout other parts of country.

Therefore, policymakers and businesses should carefully consider these indicators and take necessary measures to mitigate any potential economic downturns.

It’s worth noting that while some experts predict an impending economic slowdown based on these signs, others remain optimistic about America’s future economic prospects. Only time will tell which viewpoint holds more weight.

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