The Belmont Club: Inflection Point

The White House hyped the latest jobs report, which came out Friday, as good news, but in reality, things aren’t as great as the spin suggests. In fact, according to a report from Benzinga, a financial news and conference company in Detroit based on the new jobs report, the United States is “close to breaching the threshold for the Federal Reserve’s ‘Sahm Rule.'”





The Data: The Sahm Rule, named for economist Claudia Sahm, is a heuristic measure used by the Federal Reserve to determine whether the U.S. economy is in a recession. The rule has correctly predicted every recession since 1950 with only one false positive in 1959.

The Sahm Recession Indicator signals the start of a recession when the three-month moving average of the unemployment rate rises by 0.5% or more relative to the minimum of the three-month averages from the previous 12 months.

The Sahm indicator reached 0.43% in June, according to the Federal Reserve Bank of St. Louis. The data is sourced from Friday’s Bureau of Labor Statistics June jobs report. The number has steadily increased since last year. A post on X illustrated the increase in a graph.

The report notes that the Sahm Rule is used to guide monetary policy decisions, suggesting that leading recession indicators could prompt the Federal Reserve to lower interest rates. Currently, the market indicates a 75% probability of rate cuts in September, according to the CME group.





However, the Sahm rule is just one indicator and is by no means without flaws. Benzinga notes that “Sahm herself has said that the rule is ‘is an empirical reality, not a law of nature.’ The indicator’s approaching 0.5% is a warning sign, however, for the U.S. as it remains in murky economic waters.”

Meanwhile, the housing market remains in rough shaping thanks to high interest rates and declining sales.“Home sales activity is at a 30-year low — it’s essentially stuck at that level, so all of the economic activity associated with home sales is at a depressed level,” Lawrence Yun, chief economist at the National Association of Realtors, told Politico.

Meanwhile, record-high home prices — a result of a nationwide supply crunch — have locked more would-be first-time buyers out of the market. Polls show that the skyrocketing cost of housing is a top issue for young voters, with more than 90 percent in one survey saying affordability is a key factor in how they’ll vote this year. And it’s not just in the U.S.: The cost and availability of housing has emerged as a major political issue across other affluent democracies, including the U.K., France and Canada. 

But the Biden administration has struggled to confront the problem, with barriers to new housing largely occurring at the local and state levels.





A housing market in decline is another indicator of a looming recession. As the Politico story noted, “Housing makes up a huge chunk of gross domestic product, with spending on residential investment alone comprising up to 5 percent of economic output. As that spending dries up, it will pull down GDP at a time when consumer spending is already slowing.”


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