Stop Applying My Recession Rule to Individual States
Rising unemployment rates in places such as California, New York and New Jersey may seem dire but actually reflect economic strength.
Who will fill the openings?
Photographer: Anna Moneymaker/Getty Images
The United States has been under a “recession warning” for two years now. And after a brief lull as we entered 2024, the alarms are sounding again. It’s not the usual suspects of an inverted Treasury market yield curve or low consumer and business sentiment. Instead, some economists worry that the rising unemployment rate in several states means a recession is coming - or even here already.
The basis for these warnings is a highly accurate recession indicator I developed that has become known as the Sahm rule. As I have explained before, the premise is simple. If the three-month average of the unemployment rate (the monthly rate often bounces around too much) is half a percentage point or more above its low in the prior 12 months, the economy is in a recession.1 Applying the logic of the rule to individual states would reveal that 20 of them should be in a recession, right?2 After all, these states account for more than 40% of the US labor force and includes California, which alone has 11%.