The July jobs report just triggered a reliable recession indicator

foxbusiness.com:

Economist Peter Morici criticizes the Biden administration’s economic policies and discusses former President Trump’s campaign push to cut taxes on Social Security benefits. 

The weaker-than-expected July jobs report triggered a reliable recession indicator that Wall Street closely monitors, reigniting concerns about the health of the U.S. economy and sparking a steep market sell-off.

Employers hired 114,000 workers last month, the U.S. Department of Labor said in its monthly payroll report released Friday, missing the 175,000 gain forecast by LSEG economists. The unemployment rate jumped to 4.3%, the highest level since October 2021.

«The July jobs report is being viewed as a recession warning, and the markets are responding accordingly,» said Bill Adams, chief economist at the Dallas-based Comerica Bank.

With the jobless rate unexpectedly rising, the so-called Sahm rule is now in play. Named after former Federal Reserve economist Claudia Sahm, the rule has successfully predicted every recession since 1970.

US JOB GROWTH SLOWS TO 114K IN JULY WHILE UNEMPLOYMENT UNEXPECTEDLY JUMPS

A construction worker in Raleigh, North Carolina on July 17, 2024.  (Photographer: Allison Joyce/Bloomberg via Getty Images / Getty Images)

It stipulates that the economy is in the early stages of a recession when the three-month moving average of the jobless rate is at least a half-percentage point higher than the 12-month low. Over the past three months, the unemployment rate has averaged 4.13%, which is 0.63 percentage points higher than the 3.5% rate recorded in July 2023, crossing that threshold. 

The thinking is that a rise in unemployment reflects a spike in layoffs. When workers lose their jobs, they cut back on spending, which in