Is the US on the brink of a recession?

What are the recent jobs data telling us?

The US labor market data delivered investors a rude shock last Friday. Employment fell well short of expectations with an increase of 114 thousand. Above all, however, the renewed rise in the unemployment rate caused a stir. The increase to 4.3% triggered a much-noticed warning signal, the so-called "Sahm rule". According to this rule, a recession begins when the unemployment rate is at least 0.5 percentage points higher than the low of the previous twelve months. And in July, the rule indicated 0.53 percentage points. However, the Sahm rule is not a law of nature. We see a number of reasons in the current situation that diminish the significance of this rule:

In the past, the critical threshold has always been triggered two to three months after the start of a recession. If this also applies this time, the economic cycle would have peaked in April. However, the indicators used by the NBER to determine an economic peak and the subsequent onset of a recession have continued to rise since then: Industrial production increased by 1.5%, private consumption by 0.6%, income by 0.5% and employment by 0.3%. In the early phase of a recession, these indices would have already fallen significantly.
Unemployment rises in a recession because many employees are laid off. At present, however, the rise in unemployment is largely due to the fact that more people are looking for work, partly because of increased immigration. The proportion of people laid off as a percentage of all unemployed has therefore hardly risen in recent months, in contrast to previous recessions.

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