‘Alarming’ Economic Indicator Points to Impending Recession Following 75 Years of Accurate Predictions
A troubling economic indicator in the United States is currently signaling an approaching recession, having accurately predicted previous recessions over the past 75 years. The Kobeissi Letter, an economics outlet on the microblogging platform X (formerly known as Twitter), reveals that the US unemployment rate has been on the rise for four consecutive months, marking the lengthiest upward trend since the 2008 Financial Crisis.
Since March, the unemployment rate has increased from 3.8% to 4.3% in July, reaching its highest level since October 2021. Historically, whenever the US unemployment rate has climbed for four consecutive months in the past 75 years, it has signaled an impending recession for the country.
The Kobeissi Letter also highlights the decline in the US hiring rate last month, dropping to 3.4%, which is the lowest level since the COVID-19 pandemic hit in 2020. This figure falls below the pre-pandemic average of 3.8% and suggests that the US labor market is contracting.
This recession indicator follows closely on the heels of another key indicator triggered by the rise in the US unemployment rate last month. The resulting market sell-off wiped a staggering $5 trillion off equities. The Sahm Rule, a recession indicator that measures the three-month moving average of the US unemployment rate against its previous 12-month low, was triggered when the rate increased by 0.5% from that low.
Named after macroeconomist Claudia Sahm, who formerly worked at the Federal Reserve, the Sahm Rule may be rendered less effective in identifying a recession due to unique labor market dynamics following the COVID-19 pandemic. Sahm herself has expressed skepticism about the US economy currently being in a recession, citing resilient consumer spending. However, she considers the labor market issues as “worrisome” and believes that we should be extremely concerned as they could point to an impending recession in the near future.
Additionally, prominent macroeconomist Henrik Zeberg has echoed his prediction of an upcoming recession, which he anticipates will be preceded by a final surge in key market sectors. Zeberg warns that this recession has the potential to be the worst the market has experienced since the infamous 1929 bear market, which remains the most severe downturn in Wall Street’s history.
In a concerning development, the Hindenburg Omen, a technical indicator designed to identify potential stock market crashes, has resurfaced just one month after its previous signal. This resurgence raises concerns that a stock market downturn may be on the horizon. The Hindenburg Omen compares the percentage of stocks reaching new 52-week highs and lows against a specific threshold. When the count of stocks hitting both extremes exceeds a certain level, the indicator is triggered, indicating an elevated risk of a crash.
It is important to note that these poor economic performances and warning signs come amidst ongoing uncertainties and challenges in the global economy. As experts and market observers closely monitor these indicators, proactive measures may be necessary to mitigate the potential impacts of a recession.