The U.S. labor market, a critical indicator of economic health, is showing signs of distress. Claudia Sahm, Chief Economist at New Century Advisors, and Michael Kantrowitz, Chief Investment Strategist at Piper Sandler, discussed their concerns on Fox Business’s “Making Money” hosted by Charles Payne. Their insights highlight a potential economic downturn and the need for cautious yet proactive measures from policymakers.
Sahm Rule and Labor Market Warnings
Claudia Sahm introduced the “Sahm Rule,” an indicator she developed to signal impending recessions. Sahm emphasized that while the labor market is not flashing red, it is flashing yellow, indicating significant caution. “Things have cooled off,” Sahm said, “and we should be concerned.” She highlighted that while the economy is not currently in a recession, there are serious risks that policymakers need to address urgently.
Rising Unemployment Rates
Michael Kantrowitz noted an increase in the year-over-year change in unemployment, a key indicator of economic health. “My rule triggered three months ago, and it’s continued to rise,” he said. Kantrowitz mentioned that various forward-looking indicators suggest that unemployment will continue to increase, underscoring the need for vigilance. He also pointed out that other signs, such as declines in temporary employment and small business hiring, are consistent with a weakening labor market.
Impact of Immigration and Government Jobs
The discussion also touched on the role of immigration and government jobs in the current labor market dynamics. Charles Payne referenced a Goldman Sachs note suggesting that fewer immigrants might be affecting job numbers. Sahm acknowledged that while increased immigration helped address labor shortages, a potential slowdown in government jobs funded by federal money could impact the labor market negatively.
Rebalancing the Economy
Sahm and Kantrowitz agreed that the U.S. economy is undergoing a rebalancing process. Sahm pointed out that state and local sectors have been catching up on hiring, which might not sustain if demand weakens further. “If we have further weakening in demand for workers, and we start to see layoff rates move up, we’re close enough to the danger zone of moving into a recession,” she warned.
The Yield Curve and Recession Indicators
The steepening yield curve, often a precursor to rate cut cycles and recessions, was another point of discussion. Kantrowitz mentioned that despite some skepticism about the yield curve’s reliability, it remains a significant indicator. “I think the jury is still out,” he said, “but collectively, all the data suggests we are in a soft backdrop with moderation in inflation and gradual cooling in the economy.”
The Case for Cutting Interest Rates
Both Sahm and Kantrowitz argued for a proactive approach to cutting interest rates. Sahm advocated for immediate rate cuts, citing favorable inflation progress and the need to stop leaning on the labor market. “The Fed needs to stop leaning on the labor market,” she said, urging a gradual but proactive stance. Kantrowitz echoed this sentiment, emphasizing the need for cautious rate cuts to avoid a reactive and aggressive approach that could harm the economy.
Potential Implications for the Economy
The discussion revealed significant concerns about the future state of the economy. Rising unemployment, potential reductions in government jobs, and a rebalancing labor market suggest a cautious outlook. Proactive measures, such as preemptive interest rate cuts, could help mitigate some of these risks. However, the situation demands careful monitoring and swift action from policymakers.
“Depression, Not Recession”
People in the comments shared their thoughts and experiences: “20 people laid off at my shop last week. 25% of the workers here. We are a government subcontractor.”
Another commenter added: “They won’t admit it’s a recession or depression because they don’t want the herd of sheep to get spooked & panic.”
One person concluded: “Depression, not recession. It’s coming, and deserved.”
A Call for Vigilance and Proactive Policies
As the U.S. navigates these economic uncertainties, the insights from Sahm and Kantrowitz serve as a critical reminder of the need for vigilance. Policymakers must consider proactive measures to stabilize the labor market and prevent a potential recession. While the current signals are cautionary rather than catastrophic, they underscore the importance of timely and strategic interventions to maintain economic stability.
Impact on Customer Confidence
What are your thoughts? What are the potential risks and benefits of proactive interest rate cuts in the current economic climate? How might rising unemployment and declining temporary employment impact consumer confidence and spending? What role does immigration play in balancing labor market shortages, and how might changes in immigration policy affect the economy?
Find out more by watching the full video on Fox Business’ YouTube channel here.
