April 15, 2024
The March 2024 jobs report showed how unemployment rose to 3.9% in February, up from 3.7% in January. It’s the highest figure since January 2022, when the rate was trending lower from the pandemic peak.
The unemployment rate has incrementally moved higher in the past year from a low of 3.4% in January 2023. This data suggests the labor market is continually cooling, bringing into play the Sahm rule, which is a highly reliable recession indicator used by the Federal Reserve. It’s named after Claudia Sahm, an economist and former Fed employee.
This statistic says whenever the government’s three-month average unemployment rate is 0.5% higher than the previous three-month average low of the past year, we’re in recession. It has a perfect record of signaling recessions over the past 50 years.
Let’s consider the present cycle low to be the 3.5% three-month average from February 2023 through April of that same year. If we have a few more months of unemployment rate upticks to 4.0% or more, it could signal a recession.
We’ll then start to hear more people talking about the idea of an economic slowdown, right when we thought we were beyond such a scenario. This, along with financing our $35 trillion national debt, is probably why the Fed has indicated it’s preparing to cut interest rates.