Unprecedented Recession Indicators: 20 States in a Downturn and Rising Unemployment Rates

Cease Utilizing the Sahm Rule Recession Indicator for States

In recent years, the United States has been on a “recession warning,” despite a brief respite at the beginning of 2024. This time, however, the concerns are not related to the usual indicators such as an inverted Treasury market yield curve or low consumer and business sentiment. Instead, some economists are pointing to rising unemployment rates in several states as a sign that a recession may be looming or already underway.

The warning is based on a simple recession indicator called the Sahm rule, which was developed by an economist. 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, the economy is in a recession. Applying this rule to individual states reveals that 20 of them should be in a recession. These states account for over 40% of the US labor force, including California, which alone makes up 11% of the labor force.

The concerns about a potential recession are heightened by the fact that the unemployment rate in several states has been rising. This has led some economists to believe that a recession may be imminent if not already underway. It is crucial to monitor these indicators closely in the coming months to understand the true state of the economy and prepare for any potential challenges ahead.

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