The US job market may be signalling a potential recession as the Sahm Rule has been activated. The rule states that a recession begins when the three-month moving average of the unemployment rate exceeds the lowest unemployment rate of the last 12 months by more than 50 basis points. In June, the unemployment rate rose to 4.1%, with the three-month average at 4%.
Economist Claudia Sahm noted that while this pattern has been consistent for over 60 years, it’s not a law of physics and should be taken cautiously. However, the recent rise in unemployment has led her to suggest that the Federal Reserve should consider cutting interest rates to avoid an unnecessary recession.
The latest jobs report showed 206,000 new jobs created in June, indicating slowing but strong job growth. Wage inflation also decelerated to 3.9%, the lowest since June 2021. Analysts believe this could lead the Fed to ease monetary policy soon.
