In recent years, the United States has been on a recession watch, with concerns about an economic downturn growing. Despite a brief period of calm at the beginning of 2024, alarms are once again ringing. This time, however, the warnings are not linked to the 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 be a sign of a looming or already-existing recession.
The warning is based on the Sahm rule, developed by an economist to identify recessions. The rule is straightforward: if the three-month average of the unemployment rate is half a percentage point or more above its low in the previous 12 months, then the economy is in a recession. Applying this rule to individual states reveals that 20 should be in a recession. These states account for over 40% of the US labor force, including California which alone accounts for 11% of it.
Economists are concerned about rising unemployment rates in several states and their potential impact on the overall economy. If these trends continue, they may lead to an imminent or already underway recession. It is crucial to closely monitor these indicators moving forward and prepare for any potential challenges ahead.
