The economy may already be in recession.
The sudden and unexpected rise in the unemployment rate in July meant that the U.S. jobless rate crossed a key threshold that usually means the economy is in recession.
The U.S. Labor Department said Friday that the unemployment rate rose to 4.3% in July, bringing the three-month moving average of the unemployment rate 0.53% above the lowest three-month average over the past 12 months, triggering the so-called “thumb rule” recessionary indicator.
The Sarm rule is named after former Federal Reserve economist Claudia Sarm, who first devised it after studying the relationship between spikes in the unemployment rate and economic downturns. Sarm found that a recession usually begins when the three-month average of the unemployment rate rises by 0.5 percentage points above the lowest three-month average of the previous year.
In his study, Sahm recommended that governments start providing financial support to households once a threshold is exceeded.
Sam told The Wall Street Journal on Friday that he doesn’t think the economy is in a recession. Changes in labor supply since the pandemic, particularly the surge in immigration, may have made the Sam rule less useful, he said. Other economists have said that because the unemployment rate remains so low even after the July spike, even if it does spike, it may not be a recession severe enough to be considered a recession.
Speaking on Bloomberg Radio, Sam agreed that the Sam rule had been triggered and said that while the economy is not yet in a recession, “it’s not heading in a good direction.”
Federal Reserve Chairman Jerome Powell said Wednesday that while a recession typically occurs after the stimulus package is implemented, a recession is not guaranteed.
“This isn’t some kind of economic rule that says something has to happen,” he said.
With unemployment rising and recession indicators starting to ramp up, it will likely be difficult for Kamala Harris to convince American voters that the economy is doing better than they think.
