Sahm rule creator says no recession yet - but reason to worry
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SAHM RULE CREATOR SAYS NO RECESSION YET - BUT REASON TO WORRY
Friday’s jump in the U.S. unemployment rate triggered the so-called Sahm rule, a historically accurate early indicator of recession.
The Sahm Rule signals the start of a recession when the three-month moving average of the national unemployment rates rises by 0.5 percentage points or more, relative to the minimum of the three month averages from the previous 12 months.
Former Fed economist Claudia Sahm, who developed the rule, says this time it may not exactly signal a recession – but she sees plenty of reasons to be concerned about the path of the economy.
“The Sahm rule is a little ahead of itself because it's not capturing what is was designed to capture,” she said, citing changes in the economy post the Covid-19 pandemic, and increased immigration after labor shortages, are disrupting the data.
Still, Sahm, now chief economist at New Century Advisors, said the indicator “has gotten to a level that we should have real concern about. I don't think we're in a recession but it's getting to a place where that momentum is building in the wrong direction.”
While U.S. unemployment has risen at a very gradual pace, increases are still on pace with what would typically be seen during the early months of an economic recession, Sahm says, meaning the Federal Reserve could be behind the curve when it comes to easing policy.
Indeed, Sahm has been calling for the Fed to start cutting rates for some time.
"Given that they have been slow to start in their interest rate reductions, doing some catch up in September could make a lot of sense."
Investors seem to agree – pricing in a 50 basis point rate cut by the Fed’s September meeting, even as recession worries have roiled global markets on Monday.
For now, Sahm says it’s all about the timing – and the Fed could run out of room if it doesn’t take action soon, given how long it takes rate cuts to impact the real economy.
Still, Sahm says “We don't need a Federal Reserve that is in crisis mode.”
“We still have a strong economy. It's just slowing in a way that needs to get under control."
(Lisa Mattackal)
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Sahm Rule gets triggered Sahm Rule gets triggered https://tmsnrt.rs/3PmvWx5
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