Do Not Use the Sahm Rule Recession Indicator on States

Despite briefly respite entering 2024, the United States is once again on a “recession warning.” Economists are not focusing on usual indicators such as an inverted Treasury market yield curve or low consumer and business sentiment. Instead, they are concerned about rising unemployment rates in several states as a potential sign of an impending recession. The primary reason for these warnings is a recession indicator known as the Sahm rule, developed by an economist.

The rule suggests that 20 of the states should be in a recession, including California which accounts for more than 40% of the US labor force. If applied to individual states, this rule indicates that 20 of them should be in a recession. These warnings have significant implications, and policymakers and businesses must closely monitor these indicators to take appropriate actions to mitigate potential impact.

It is crucial to prepare for any economic challenges that may lie ahead as time will tell whether these warnings are accurate or not. A recession in even just a few states could have ripple effects on the broader economy. Therefore, it is essential to closely monitor these indicators and take appropriate actions to avoid the negative impact of a downturn.

By Samantha Johnson

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