Economic decline now – don't trust their optimistic cards, reports are false

[Heather, 7-9-2024, The Washington Post, “Opinion America’s best recession indicator is flashing yellow,” https://www.washingtonpost.com/opinions/2024/07/09/economy-recession-risk-sahm-rule/, accessed 7-10-2024, CM]

The Sahm Rule indicator is getting close to 0.50, which signals a recession. The rule compares the latest three-month average of the unemployment rate to the lowest three-month average from the past year.

It’s true that, in many ways, the U.S. economy looks great right now. Growth is solid. Inflation has come way down. The stock market is at a record high. Unemployment is a mere 4.1 percent. The economy just added more than 200,000 jobs in June, and more people are looking for jobs now than a year ago. Plus, most workers are seeing their paychecks grow more than inflation. Summer vacation travel is also booming, one of the clearest signs households are doing pretty well.

But it’s important to understand that the economy typically looks fine until a crisis hits. The very fact that the economy is in a good place now is reason to take the warning signs seriously — and act to prevent further deterioration.

“We are in the yellow flag category,” Sahm told me. “We should be having a recession risk discussion. It has crossed that threshold.”

Sahm is adamant that the key takeaway from where her rule is now, along with other indicators that the economy is starting to slow — such as rising credit card debt and shoppers spending less — is that the Federal Reserve should cut interest rates. She doesn’t expect the Fed to lower the nearly 5.5 percent rate at its upcoming July 30-31 meeting, but she hopes Fed board members have a serious discussion about a September cut.

“By the time it is blatantly obvious we are in a recession, it’s too late for the Fed’s tools to work,” said Sahm, who is now chief economist at New Century Advisors and founder of Sahm Consulting.