This recession indicator has a perfect track record over the past few decades. And today, it's signaling we're close to a recession.
About a month ago, I (Jeff Havenstein) wrote to you saying we would not likely see a recession unless the labor market starts to deteriorate. You can't have a recession when hundreds of thousands of new jobs are added every month.
I still believe we're not going to see a recession anytime soon because of that. There were 336,000 jobs added in September and 150,000 in October.
But I have seen some things that worry me...
The unemployment rate in the U.S. has gone from 3.5% in July to 3.9% in October. Now, an unemployment rate of 4% and lower is incredible. That signals an incredibly strong labor market. But it's the pace that unemployment is increasing that's worrisome.
You might not be familiar with the "Sahm rule"...
This is named for Claudia Sahm, an economist and one-time employee at the Federal Reserve. Basically, the Sahm Rule says that whenever the government's unemployment rises 0.5 percentage points off a low, we're in recession.
A percentage point refers to the difference between two percentages... Moving up from 1% to 2% is an increase of one percentage point, for example.
Specifically, the Sahm Rule takes the three-month average of the unemployment rate. Then, it compares that number with the lowest three-month average over the past year. Once the latest three-month average is 0.5 percentage points above the lowest three-month reading of the past year, that marks the start of a new recession.
Like I mentioned earlier, the Sahm Rule has a perfect record of predicting recessions over the past 50 years – although it did produce some false signals before 1970. But you'll see over the past three decades, the indicator has been very accurate in predicting recessions...
The indicator is currently sitting at 0.33. That means the unemployment rate has risen 0.33 percentage points from its recent low.
The good news... it's not flashing recession just yet. Again, it needs to hit 0.5 to signal recession. We're getting close, but we're not there yet.
I still believe that where the economy is today, we are not at a great risk of recession.
Of course, that can change. And if we do see the Sahm Rule indicator hit 0.5, it might be time for me to change my mind. I'm keeping a very close eye on it.
Regardless of whether we'll see a recession in 2024, 2025, or not have one at all, you need to position your portfolio correctly.
My friend and 50-year Wall Street veteran Marc Chaikin called the 2020 market crash, the red-hot rally that followed, and 2022's brutal bear market. So when he makes a big announcement about U.S. stocks, it pays to listen.
And now, he's making his next big call. Click here for details of his new prediction for 2024.
What We're Reading...
- Unemployment just triggered the ultra-reliable Sahm rule that predicts every recession, but its inventor hopes she's wrong this time.
- The 'R' word: Why this time might be an exception to a key recession rule.
- Something different: Shein files for U.S. IPO, as fast-fashion giant looks to resolve forced labor, climate concerns.
Here's to our health, wealth, and a great retirement,
November 29, 2023