Understanding the Sahm Rule
The Sahm Rule is an economic indicator that attempts to predict recessions based on the unemployment rate. The rule, developed by economist Claudia Sahm, states that a recession is likely if the three-month moving average of the U-3 unemployment rate rises by 0.50% or more from its low point in the past 12 months.
June Unemployment Data and the Sahm Rule
According to data released by the Bureau of Labor Statistics (BLS), the U-3 unemployment rate for June 2023 was 3.6%. This represents a 0.1% increase from May and a 0.53% increase from its low point of 3.07% in December 2022.
Implications for the Economy
The fact that the June U-3 unemployment rate meets the Sahm Rule criteria suggests that the economy is at risk of falling into a recession. Historically, the Sahm Rule has been a reliable indicator of future recessions, correctly predicting eight out of the last nine downturns.
Factors Contributing to Recession Risk
Several factors may be contributing to the increased unemployment rate, including:
Impact on Consumers and Businesses
If a recession occurs, it could have a significant impact on consumers and businesses. Consumers may face job losses, reduced wages, and higher prices. Businesses may experience lower sales, reduced profits, and difficulties accessing financing.
Policy Considerations
In light of the Sahm Rule indicator, policymakers may consider taking steps to address the potential recession risk. This could include:
Conclusion
The June U-3 unemployment rate meeting the Sahm Rule criteria is a warning sign that the economy may be headed towards a recession. While this is not a certainty, it is crucial for policymakers, consumers, and businesses to be aware of the potential risks and take appropriate actions to mitigate their impact.
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S. Sing
