News/Commentary

‘Stay calm’: Sharp jump in unemployment raises recession fears

August 2, 2024 | | Print Article

Bureau of Labor Statistics (BLS) data released Friday paints a dismal picture for the nation as an increase in the unemployment rate triggered panic on Wall Street.

The latest jobs report “revealed that the unemployment rate last month jumped from 4.1% to 4.3% – still a historically low figure – but a sign that the U.S. could be in the early stages of a recession based on one measure,” reported USA Today.

“Stay calm. Most economists say the measure – called the Sahm rule – probably doesn’t apply this time because of the unprecedented ways the pandemic upended the economy and labor market,” the outlet added. “Still, a 4.4% jobless rate is roiling stocks and may signal further weakening ahead in an already slowing labor market.”

Economist John Lonski said he can “smell a recession” coming.

“The markets are no longer worried about inflation, instead they are becoming worried about the possibility of a recession,” he told Fox Business.

“I’m beginning to smell a recession coming into view… this jump by the unemployment rate, my goodness, 4.3 percent. This is up sharply from not long ago,” he added. “The market has it right. We have strong reason to be worried about the sustainability of corporate profits looking ahead.”

The Friday report of the highest unemployment rate since October 2021 sent the S&P 500 index off by 1.4% while the Dow Jones Industrial Average was down 363 points.

Economist Claudia Sahm, who has accurately predicted every U.S. recession since the 1970s, believes the “Sahm rule” does not apply this time.

(Video Credit: Bloomberg Television)

“According to the Sahm rule, if the unemployment rate, based on a three-month average, is a half percentage point above its lowest point over the past 12 months, the economy has entered a downturn. If unemployment reached 4.2% in July, the three-month average would be 4.1%, a half point above the 3.6% average a year ago,” USA Today explained.

“A recession is not imminent, even though the Sahm rule is close to triggering,” Sahm, a former Federal Reserve economist, wrote last week. “The swing from labor shortages caused by the pandemic to a burst in immigration is magnifying the increase in the unemployment rate.”

At a news conference this week, Fed Chair Jerome Powell said, “It’s not like an economic rule where it’s telling you something must happen.”

“What we think we’re seeing is a normalizing labor market and we’re watching carefully to see if it turns out to be more,” he added.

Despite the reassurances, many feel the writing’s on the wall. Social media users responded to the day’s dismal news.

Frieda Powers
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