The economic machine chugs along
A slight unemployment uptick has not thrown a spanner in the works, meaning a recession is still unlikely. Here’s why.
More Americans are struggling to find a job today than a year ago. The unemployment rate was 3.5% in June last year. Now it’s 4.0%, a slight uptick. This rise has some pundits on edge, especially the doom ‘n gloomsters. They’ve started to point at a little-followed but excellent recession indicator called the Sahm rule to back up their recession fantasies.
This economic indicator, which measures the relative change in the unemployment rate, has crept up to 0.35 and looks like it’s on track to hit its 0.5 event horizon, which indicates a recession has started. So, does the rising unemployment rate mean there will be a recession? No. The pundits claiming this are wrong. In fact, it still looks like there won’t be a recession at all.
While the Sahm rule has a perfect track record for telling economists if there is currently a recession or not, it has little to no predictive power. Since 1948, there have been 21 instances where the Sahm rule was in an uptrend and rose above 0.3. Of those, i…