The US Sahm rule recession indicator edges up
US unemployment has edged up to almost 4%
The US unemployment rate has increased to almost 4%, which has seen the Sahm rule - which is a shorthand coincident measure of whether the US is in recession - start to edge up.
Friday’s US payrolls report was a little weaker than the market had expected, with the number of payrolls jobs increasing by 0.1% in October, the unemployment rate edging up to 3.9%, and trend growth in average hourly earnings slowing further.
The unemployment rate is now up 0.5pp from its recent multi-decade low of 3.4%, with the Sahm rule – which uses the change in the average unemployment rate as a shorthand coincident measure of whether the US economy is in recession - starting to edge up.
The Sahm rule is that the US has been in recession when the three-month moving average of the unemployment rate rises by 0.5pp or more relative to its low during the previous 12 months.
The rule's value picked up to 0.3pp in October, still well short of the 0.5pp threshold, where Sahm has noted, "[the rule] is an indicator, not a forecast, but, clearly, rising unemployment is not a good sign [and] you don’t need a rule for that", cautioning that, "[the rule] is an empirical reality, not a law of nature".
The rise in unemployment may seem surprising given
that the annualised trend growth in payrolls is about 1½%, but surveyed
employment - which is extremely volatile - is flat in trend terms, where the latter is used to construct the
unemployment rate.
Meanwhile, annualised trend growth in private-sector average
hourly earnings slowed to 3½%, similar to pre-pandemic peaks, contrasting with
trend growth of 4¾% in the employment cost index ex-commissions, which is the
Fed’s preferred measure of wages.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy, contributing to the investment decisions of the firm. Kieran has long experience as a macroeconomist in both the private and public sectors. He has worked most recently as Chief Markets Economist for National Australia Bank and was previously Chief Economist, Australia and New Zealand, for Barclays Bank and ABN Amro Bank/RBS. Kieran also worked as Principal Adviser on the macroeconomy and budget policy in the Commonwealth Treasury and Director of Forecasting.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
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