The abysmal July jobs report may have triggered a key recession indicator called the Sahm Rule. Named after former Federal Reserve economist Claudia Sahm, the concept was designed to signal the beginning of a recession. It works like this: If the three-month moving average of the US unemployment rate increases by at least 0.5% from its low in the last 12 months, the country could be at the beginning of a downturn. Is that what’s happening now?
Sahm Rule and the Jobs Report
The July jobs report ostensibly took everyone by surprise. According to the Bureau of Labor Statistics (BLS), the US economy created 114,000 new jobs last month, falling short of economists' expectations of 175,000. Most of the job creation was directly or indirectly government-related: health care (55,000) and government (17,000). Construction jobs contributed 25,000 to the final reading. In other headline data points, average hourly earnings eased to 3.6%, average weekly hours dipped to 34.2, and the labor force participation rate edged up to 62.7%.
Of course, the revisions cannot be ignored. For the fifth time this year, the federal statistics agency reported downward adjustments to the May and June reports, totaling 29,000. The number of people working two or more jobs surged to 8.42 million, foreign-born workers outpaced US-born workers, and the household survey, which removes duplication, showed the nation added just 67,000 new positions.
What turned out to be the main event of the monthly non-farm payroll data was the jobless number. The unemployment rate was a higher-than-expected 4.3%, up from 4.1% in the previous month. Over the last 12 months, unemployment has climbed by 0.8%. Indeed, the U-6 unemployment rate, which measures underemployed, discouraged, and long-term joblessness, advanced to 7.8%. But nobody cares about this metric!
Now, what about this Sahm Rule business? In theory, an acceleration in the three-month average would convey to the public that the economy is slumping. Additionally, if the unemployment rate increases by 0.5 percentage points, the recession may have already begun, according to data compiled by the Bank of America. The Sahm Rule has indicated 12 of the last 13 recessions (1960 was the exception).
However, the economist who created this metric does not believe the US is in a recession. Speaking in an interview with The Wall Street Journal, Sahm noted that the rule has become less useful in today’s economic landscape amid post-pandemic changes to the labor market and the recent spike in immigration. However, she conceded to the newspaper that she is worried about the direction of the world's largest economy, purporting that the Federal Reserve should have cut interest rates at the July Federal Open Market Committee (FOMC) policy meeting.
At the post-meeting press conference on July 31, Chair Jerome Powell was asked about the Sahm Rule. His explanation? The labor market is merely normalizing. It’s just "a statistical regularity, it's not like an economic rule where it's telling you something must happen."
For now, the financial markets are worried that a recession is on the horizon, with the leading benchmark indexes cratering as if it were February 2020. The Dow Jones Industrial Average plunged as much as 1,000 points, the S&P 500 Composite Index wiped out billions of dollars, and the tech-heavy Nasdaq Composite Index entered correction territory. What an entertaining home stretch to the 2024 election it will be. Surveys of the American people thinking the country is in a recession may have been right after all.
The Basic Income Guarantee
Well, if the job market is collapsing and millions of people become out of work, the federal government can always institute a basic income guarantee! For years, advocates have championed the notion that a universal basic income would only be a net positive, with workers using it to obtain a little bit of breathing room. The coronavirus pandemic offered a glimpse of what a basic income scheme would look like, but now there is empirical evidence.
A study was recently published by the National Bureau of Economic Research (NBER). The five economists studied the effects of giving hundreds of low-income individuals a cool and free $1,000 per month in two states for three years. The results were not pretty: Total individual income fell by $1,500 per year, a two percentage point decrease in labor market participation, and a 1.4-hour-per-week drop in labor hours.
This conclusion might be the best part of the report: "Despite asking detailed questions about amenities, we find no impact on quality of employment, and our confidence intervals can rule out even small improvements. We observe no significant effects on investments in human capital, though younger participants may pursue more formal education." Still, despite the data, the federal government will inevitably launch a universal basic income in the coming years.
Unleash the War on Windmills?
Plastic straws are planet killers, and windmills will save Mother Nature. So goes the greenwashing wisdom from governments everywhere enacting befuddling green policies, putting the pandemic-era public health policy pursuits to shame. Case in point: windmills and plastic straws.
Analysts at The Manhattan Institute, a right-leaning think tank, published a report in July 2020 comparing the environmental effects of plastic straws and windmills. “When the 20 wind turbines that constitute just one small 100-MW wind farm wear out, decommissioning and trashing them will lead to fourfold more nonrecyclable plastic trash than all the world's (recyclable) plastic straws combined. There are 1,000 times more wind turbines than that in the world today," the analysis, which has resurfaced across social media, stated.
Yet, the world is dumping hundreds of billions of dollars in taxpayer-funded subsidies to construct windmills that harm the environment. While the verdict is out if these eyesores are killing whales, Washington bureaucrats are figuring out how to protect the endangered North American right whales. Government-supported land-based and offshore wind farm development might trigger far more unintended consequences than the minuscule amount of energy they may produce.
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