Cease Utilizing the Sahm Rule Recession Indicator for States

Alarm Bells: 20 States on Recession Watch as Unemployment Rates Soar

For the past two years, the United States has been on a “recession warning,” and 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 the 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

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