July’s jobs report raises concerns of a recession
In recent weeks, the US economy has shown a number of signs that its relatively strong post-pandemic performance is starting to slow down – and Friday’s jobs report marked the strongest such indicator to date.
The US economy added 114,000 jobs last month, well below economists’ predictions of 185,000 new jobs, according to new Bureau of Labor Statistics data.
- As a result, the US unemployment rate rose from 4.1% in June to 4.3% in July, representing a three-year high and nearly a full percentage point above the modern-era low set in April 2023 (3.4%).
The data officially triggered a recession “rule.” To be clear: the US economy is not currently in a recession. Major stock indexes are comfortably positive year-to-date, GDP grew at a 2.8% annual rate last quarter, and the unemployment rate remains historically low.
However, when America’s jobless rate rises as fast as it has so far this year (from 3.7% in January to 4.3% in July), it strongly indicates a recession is on the horizon, according to the “Sahm rule” – an indicator developed by former Fed economist Claudia Sahm that’s correctly predicted all nine US recessions since the 1970s.
Yes, but: As financial ads say, past performance doesn’t (necessarily) indicate future results. Many economists say it’s too early to connect recent labor market turmoil to an impending recession, since July’s elevated unemployment rate can be attributed to rising US labor participation – which is beneficial for the economy – as well as temporary factors like Hurricane Beryl.
Looking ahead… July’s jobs report essentially guarantees the Fed will start cutting interest rates at its next meeting in September, which would mark the first rate cut since March 2020.
- The latest jobs data also raises the odds that the Fed will roll out larger-than-anticipated rate cuts to close out the year, which would bring down borrowing costs for mortgages, car loans, credit cards, and other interest rate-based products.
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See a 360° view of what media pundits are saying →
Sprinkles from the Left
- Some commentators argue that it’s concerning to see signs that the labor market is turning, and that the Fed should swiftly take action – in the form of significant rate cuts – to ensure that America’s unemployment rate doesn’t remain elevated over the long term.
- Others contend that while worse-than-expected jobs data has officially triggered the “Sahm rule” indicating a recession is nigh, this time things might develop without a recession because America’s current economy is markedly different than before the pandemic.
- “America’s historic job gains are at risk” –WaPo Editorial Board
- “Keep Sahm and Carry On” –Paul Krugman, NY Times
- “Jobs Report Should Put a Jumbo Fed Rate Cut on the Table” –Jonathan Levin, Bloomberg
Sprinkles from the Right
- Some commentators argue that the recent disappointing jobs data means the White House can no longer deflect from its failures on many fronts – inflation, the debt, the border, etc. – by touting the robust job market and low unemployment.
- Others contend that the recent weak economic data and potential looming recession could play a large role in November’s presidential election, since the blame for poor US economic performance should be blamed on the Democratic politicians in power.
- “Bad economic news clouds the White House” –Las Vegas Review-Journal Editorial Board
- “Rumors of an Election Recession” –WSJ Editorial Board
- “Unemployment, Interest Rates, and the Sahm Rule” –Dominic Pino, National Review
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