US labor market check-up

Rise in unemployment rate triggers alarm signal...

The US unemployment rate rose to 4.3% in July. This puts the three-month average 0.53 percentage points above the low of the last twelve months and triggers the critical threshold of the so-called Sahm rule; an increase in the unemployment rate of at least 0.5 points has always been associated with a recession in recent decades.

In fact, the development of the unemployment rate is similar to the path in the last recessions. In the months before the Sahm rule was triggered, a gradual and moderate rise in the rate was always observed in the last economic cycles – just as is currently the case (Chart 1). Thereafter, the rise in the rate has usually accelerated. In 2001 and 2008, for example, the unemployment rate was around 1/2 percentage point lower twelve months before the Sahm rule was triggered. Twelve months later, it was 4 percentage points higher in the 2008/09 crisis and 1.3 percentage points higher in 2001/02.

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