Are we going to have a recession soon?

See What's the Sahm Rule? Alarming Jobs Report Raises Recession Risk: A key indicator has predicted every recession since 1970, and the alarm just sounded by Eric Boehm of Reason. Excerpt:

"It is named after economist Claudia Sahm, who served as a top economic advisor during the Obama administration and identified a historical indicator of coming recessions in 2019: every time since 1970 that the three-month moving average of the U.S. unemployment rate is more than half a percentage point above the lowest three-month moving average from the previous year, a recession has soon followed."

"Unemployment in July ticked upwards to 4.3 percent. Over the past three months, the average unemployment rate has been 4.13 percent. That's quite a bit higher than the lowest three-month average from the past year—which was 3.63 percent, between June and August 2023."

"The markets, however, seem to be taking the Sahm Rule seriously. There was a huge sell-off on the stock market Friday morning and bond yields fell as well—an indication that investors are essentially "pricing in" the cost of a coming downturn.

But there's one more complicating factor. Sahm herself says this might be a false alarm. [but she expressed worry in June that the Fed was not cutting interest rates-see related posts below]

The Wall Street Journal reports that "Sahm doesn't think the economy is on the immediate cusp of a recession. She reckons that changes in the supply of labor since the pandemic, including the recent jump in immigration, have led the Sahm rule to overstate how weak the job market is."

""We are still in a good place, but until we see signs of stabilizing, of leveling out, I'm worried," Sahm, who also worked at the Federal Reserve and is now the chief economist at New Century Advisors, an investment firm, told the Journal."

Sahm herself has said: "the Sahm rule is an empirical regularity. It's not a proposition; it's not a law of nature."

"The commonly used definition of a recession is back-to-back quarters of negative economic growth—but the economy grew by 2.8 percent during the second quarter of 2024."

"The official arbiter of recessions is the National Bureau of Economic Research (NBER), a private entity whose definition of a recession takes into account monthly indicators like employment, personal income, and industrial production along with quarterly gross domestic product (GDP) growth (by their terms, two consecutive quarters of negative GDP growth often, but not always, correspond with an official recession)."

Related posts:

The Fed is ‘playing with fire’ by not cutting rates, says creator of ‘Sahm Rule’ recession indicator (June 19, 2024)

What Causes Recessions? What Do Recessions Look Like? (2023)

The Sahm rule and recessions (2020) 

What ends expansions? (or what causes recessions according to Alan Blinder and Austan Goolsbee) (2019)

Are business cycles imbedded in longer cycles called financial cycles? (2019)

Monetary Policy and the Great Crash of 1929: A Bursting Bubble or Collapsing Fundamentals? (2018)

Some Bad News for Good News — Optimistic Forecasts Create Recessions (2018)