Unemployment Rate Surge Prompts Sahm Rule Indicator, Pointing To Possible Us Economic Downturn.

An economic indicator that has historically shown a high level of accuracy in predicting recessions in the United States is now indicating the possibility of an upcoming recession in the country, following a recent surge in unemployment rates.

In the month of July, this indicator recorded a value of 0.53.

However, it is important to note that Sahm, the economist behind the indicator, advises against considering the current signal of a recession as a fully reliable one. She points out that there have been unusual shifts in the labor market, which could have distorted the accuracy of the indicator.

Sahm explains that due to significant fluctuations in the labor force and a rise in immigration over the past few years, the unemployment rate may have been influenced in a unique manner, deviating from patterns seen in previous economic cycles.

Nevertheless, Sahm emphasizes that we should not disregard the warning provided by the Sahm Rule. While a recession may not be imminent, the risks of a recession have indeed increased.

In the month of July, the number of unemployed individuals in the United States rose by 352,000, bringing the total count of jobless people up to 7.2 million. This figure is more than one million higher than it was one year ago.

By maintaining the current interest rates for an extended period, companies are forced to face higher interest payments on their loans, which can lead to financial difficulties. Additionally, higher interest rates can discourage individuals from taking on debts or making credit-based purchases, both of which contribute to economic slowdown and weak performance in the stock market.

Regarding the normalization of the labor market, Powell, a prominent figure at the Federal Reserve, stated that the situation is being closely monitored. If the labor market shows any signs of being more than just a temporary fluctuation, the Federal Reserve is well-prepared to take appropriate actions.

As for the reduction of interest rates, Powell mentioned that the Federal Reserve officials do not anticipate a need to lower the target range for the federal funds rate until they are confident that inflation is on a sustainable path towards the two percent target.