While America’s labor market may not be collapsing, Moody’s Analytics has highlighted that it is inching steadily closer toward a key recession indicator, with analysts now placing the probability of an economic contraction at around 40%. According to the Bureau of Labor Statistics (BLS), the unemployment rate for November edged up to 4.6%, continuing the creep higher that analysts have been nervously monitoring throughout the year. The BLS noted a meagre 64,000 roles were created last month, showing little net change from April this year.While 4.6% is not a dire figure—around 4% is seen as a reasonable rate of unemployment in a relatively stable economy—it is markedly higher than last November, when it was 4.2%. But it’s not necessarily the rate of unemployment that is making economists nervous. Rather, it’s the broader trend of decline and what this demonstrates about the trajectory of the economy.
In the most recent episode of Moody’s podcast Inside Economics, its chief economist, Mark Zandi, and senior director of economic research Dante DeAntonio observed that America is close to triggering the Sahm Rule.
The Sahm Rule, invented by former Fed economist Claudia Sahm, is a recession signal that is activated when the three-month moving average of the national unemployment rate rises by 0.5 percentage points or more, relative to the minimum of the three-month averages from the previous 12 months. In November, it stood at 0.43.
