U.S. Economy Nears Sahm Rule Activation as Unemployment Rises
The U.S. economy is approaching a significant turning point as unemployment rises, edging closer to the activation of the Sahm Rule. Moody’s Analytics reports a 40% probability of an economic contraction. This concern is fueled by the latest Bureau of Labor Statistics (BLS) report, which shows the unemployment rate in November climbed to 4.6%. This increase marks a shift from 4.2% a year earlier.
Current Labor Market Trends
According to the BLS, only 64,000 jobs were added in November, indicating minimal growth compared to earlier this year. While a 4.6% unemployment rate is not alarming on its own, the increasing trend worries economists about the overall health of the economy. Mark Zandi, chief economist at Moody’s, expressed concerns in a recent podcast about the implications for economic stability.
The Sahm Rule Explained
The Sahm Rule serves as a key recession signal that activates when the three-month moving average of unemployment rises by 0.5 percentage points or more compared to the lowest three-month average in the past year. Currently, the figure is at 0.43, indicating that the U.S. economy is on the verge of reaching this recessionary threshold. If the unemployment rate remains at 4.6%, the rule could trigger next month.
Economists’ Perspectives
- Mark Zandi: Expressed that current signs indicate a nearing recession.
- Cris deRitis: Estimated a 40% likelihood of a recession occurring next year.
- Dante DeAntonio: Highlighted weak job growth and labor supply as contributing factors.
DeRitis notes that the consensus for Wall Street puts the odds of a recession at 30% to 35%. The discussions emphasize that diminished job growth can be partially attributed to immigration policy and a decline in labor supply.
Impact of Automation and AI
Economists also discussed the influence of artificial intelligence (AI) on the job market. Despite its current modest impact, the future implications could lead to significant job losses as productivity increases. According to Zandi, consumer demand could be affected by various administration policies and shifts in workforce demographics.
Conclusion
As the U.S. economy nears the potential activation of the Sahm Rule, the implications for the labor market are considerable. Economists advise close monitoring of employment trends to better understand the trajectory of the economy. The interplay of unemployment, labor supply, and technological advancements will likely shape the economic landscape in the coming months.
