The unemployment rate increased to 3.9% in October; job gains slowed to 150,000--a sign that the recent burst in economic activity and jobs was likely unsustainable. But that's not a recession.
The fact that interest payments go to net savers is reason to think again about the usefulness of those payments as an economic buffer. The fact that they haven’t worked for the money is a supply-side issue. The fact that they won't spend it is a demand-side issue. S=I isn't all that reliable as a business cycle predictor.
It's going to take a lot more than a so called "soft" jobs number of 150k to trigger this recession so many are clamoring for. Some people need to get over themselves, this was not a terrible jobs report yesterday. I also wouldn't be in any rush to credit Jerome Powell for the moderation in job growth or even wages which have slowed to some extent as well.
Net-transfers from the Treasury into private bank accounts is still running at about $1.7T/year rate. No way a recession happens with that kind money-flow... regardless of what happens to the Sahm rule.
I just wanted to say it is excellent that that the Federal Reserve actually has a chart named after you. Way to go. It is especially nice that the tool has been so accurate. I'm adding this one to my toolbox.
thank you for the article and your beautiful, simple indicator. Question: why did you say if the 3m avg of unemployment rate hits 4%, it triggers the Sahm rule? since the lowest unemployment rate was 3.4% (april 23), a 3-month avg of 3.9% will trigger it already, right? in other word, even if unemployment rate stays at 3.9% for the next 2 months, the 3 month avg will automatically increase to 3.9%, which trigger the Sahm rule. thanks.
Does/should the Sahm Rule apply when the unemployment rate is below CBO's Non-cyclical Rate of Unemployment (NROU)? Currently calculated as 4.42%, which is well above the current 3.9% estimate. Given that it is possible with very low unemployment that the national unemployment rate rises by 0.50 percentage points or more relative to its low during the previous 12 months and still be below NROU. I'd be curious to hear your thoughts. Enjoy reading your work - keep it up!
Claudia - read a note earlier today that employment has been revised down for 8 of the last 9 months. Have you looked at the preceding periods prior to the Sahm Rule triggering as to the nature of employment revisions? Were they also in one direction? Or variable (some up, some down)? I do NOT know how often revisions are so consistently in one direction. Seems odd. Either a data reporting problem or model problem on part of BLS.
But what does the rule imply about the Fed policy? Could it not looking at the rule and change policy instrument settings on the basis of it so as to avoid the recession it is indicating? Or the Fed is setting policy instruments on the basis of data that is or is not correlated with the SAMH rule? Or it makes policy on the basis of totally orthogonal data? But there ought to be an assumption.
As an aside - would love to hear your take on the gangbuster productivity numbers! Really great news, and hopefully a sign we can see a soft landing?
Have you had a look at how accurate a similar rule would behave for any of the segments of unemployment? I had a go at calculating this rule for different genders, and it looks like its triggered for men (https://fred.stlouisfed.org/series/LNS14000001). However it may not "work" as well for different segments - interesting none the less!
Claudia: Should 4% 3-month MA of the unemployment rate trigger the Sahm Rule, would this be the lowest trigger value of U?