Do Not Use the Sahm Rule Recession Indicator on States

The United States has been on a “recession warning” for the past two years, despite briefly entering 2024. This time, the concerns are not focused on traditional indicators such as an inverted Treasury market yield curve or low consumer and business sentiment. Instead, economists are pointing to rising unemployment rates in several states as a potential sign of an impending recession – or even one that may already be here.

One of the primary reasons for these warnings is a recession indicator known as the Sahm rule, developed by an economist. This rule suggests that if the three-month average of the unemployment rate is half a percentage point or more above its low in the prior 12 months, it indicates that the economy is in a recession. When applied to individual states, this rule suggests that 20 of them should be in a recession, as they collectively account for more than 40% of the US labor force, including California, which alone represents 11%.

The implications of these warnings are significant as a recession in even just a few states could have a ripple effect on the broader economy. It is essential for policymakers and businesses to closely monitor these indicators and take appropriate actions to mitigate the potential impact of a downturn. Only time will tell whether these warnings are accurate, but it is crucial to be prepared for any economic challenges that may lie ahead.

Economists have also pointed out that other factors such as inflation rates and trade tensions could also play a role in triggering an economic downturn. It is important to note that no one can predict with certainty when or if a recession will occur. However, being aware of these signs and taking proactive measures can help minimize its impact on individuals and businesses alike.

In conclusion, while there is always some degree of uncertainty surrounding economic conditions, it is important for policymakers and businesses to stay vigilant and take appropriate actions to prepare for any potential downturns. By monitoring key indicators such as unemployment rates and inflation rates and adopting proactive measures to mitigate their impact, we can better weather any economic challenges that may come our way.

By Riley Johnson

As a content writer at newsmol.com, I dive into the depths of information to craft compelling stories that captivate and inform readers. With a keen eye for detail and a passion for storytelling, I strive to create engaging content that resonates with our audience. Whether it's breaking news, in-depth features, or thought-provoking opinion pieces, I am dedicated to delivering high-quality, informative content that keeps readers coming back for more. My goal is to bring a fresh perspective to every article I write and to make a meaningful impact through the power of words.

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