Unemployment rate rise rings alarm bells over US economy


The rise in state-level unemployment rates in nearly a third of the country last month should raise concerns over the state of the U.S. economy, according to an economist who claims a recession might still be in the cards for 2024.

According to a new report by the Bureau of Labor Statistics quoted by Reuters on Tuesday, 15 states saw their unemployment rates climb in December, compared to only three the month before. Thirteen states and the District of Columbia had unemployment rates at or above 4 percent, the highest count since December 2022.

This happened despite the fact that the national average unemployment rate remained unchanged at 3.7 percent from one month to the next, and from the addition of 216,000 jobs in December.

In a majority of states, including the District of Columbia, rates were unchanged from November 2023. Compared to a year before, state-level unemployment rates had risen in 30 states in December, while remaining essentially unchanged in 20 others and the District of Columbia.

People wait in line in Manhattan on January 5, 2024, in New York City. Stubbornly high unemployment rates in several U.S. states have raised concerns over the risk of a recession in 2024.
People wait in line in Manhattan on January 5, 2024, in New York City. Stubbornly high unemployment rates in several U.S. states have raised concerns over the risk of a recession in 2024. Spencer Platt/Getty Images

Parker Ross, global chief economist at American public limited liability company Arch Capital Group, based in Bermuda, said that the latest data on unemployment suggests the U.S. economy might still be at risk of entering a recession.

“State-level unemployment rates were just released and they continue the string of bad news from the household survey,” Ross wrote on X, formerly known as Twitter, commenting on the latest data.

“It’s been a while since I’ve refreshed this dataset and now my updated state-level Sahm-Rule indicator is really heating back up—in fact, it’s now above the threshold that marked the onset of every recession since the 1970s,” he continued.

The Sahm Rule is used to identify signals related to the start of a recession “when the 3-month moving average of the national unemployment rate rises by 0.5 percentage points or more relative to its low during the previous 12 months,” according to the Federal Reserve of St. Louis. The Fed uses the Sahm Rule to determine when the country has entered a recession.

Through the month of December, 20 states “had triggered the Sahm Rule, up sharply from just 3 states in September,” Ross wrote on X. These 20 states are New Jersey, West Virginia, Wisconsin, Arizona, California, D.C., Alaska, Montana, Missouri, Illinois, Idaho, Arkansas, Maine, Michigan, Indiana, Oklahoma, Colorado, New Hampshire, Iowa and Kentucky, according to data shared by Ross.

Here’s a look at the 20 states that have breached the Sahm-rule threshold for a recession.

Important to note that the Sahm-rule was not trained on state-level unemployment rates, but you can see in my chart at the top that it mimics the national-level version well. pic.twitter.com/OQfjZ6MJ5q

— Parker Ross (@Econ_Parker) January 23, 2024

“Nearly 25 percent of states had triggered the Sahm Rule last Nov[ember] when layoffs were picking up in Tech/Real Estate/Finance, but then those tapered off and the share pivoted sharply lower just below reaching the threshold for typical recessions,” he added.

“The increase in unemployment across the country is reflective of a labor market that continues to cool. We expect a further gradual increase in the national unemployment rate in 2024, with risk of an acceleration higher if the Fed does not begin to normalize rates in the months ahead,” Ross told Newsweek.

“While we see a decent chance of a recession in 2024, we currently view that as a less likely outcome than continued growth. The biggest risk to our outlook is an overly cautious Fed that maintains restrictive rates for too long.”

Massachusetts and Rhode Island were the two states that reported the biggest month-on-month unemployment increase in the country in December with a 0.3 percentage point climb. Minnesota was the only state in the nation to experience a drop in unemployment, which came down by 0.2 percent.

Nevada had the highest overall employment rate in the U.S., which remained unchanged from November at 5.4 percent.

Towards the end of 2023, more investors became confident that the U.S. economy might avoid a recession this year, as inflation cools but the economy keeps growing. In October, the New York Fed estimated a 56 percent chance of a recession by December 2024, down from 66 percent in a previous reading in August.

A recession is identified as two consecutive quarters of contracting gross domestic product, or GDP.

Update, 1/25/24 4:50 a.m. ET: This article was updated to include a comment from Parker Ross.

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