The Big Picture: The recently released state-level jobs data paints an interesting picture. While the overall U.S. job market seems stable, a handful of states are exhibiting trends we usually associate with recessions.
The Good News: The silver lining is that these concerning trends are limited in scope, at least for now. Only four states and the District of Columbia have witnessed their unemployment rates increase by more than half a percentage point in the past year.
The Less Rosy News: Unfortunately, some of the states experiencing the most significant upticks in unemployment include populous states like California (up 0.8 percentage points) and New Jersey (up 1.2 points).
Bright Spots: On a more positive note, 18 states have seen their jobless rates drop by half a percentage point or more in the last year. Maryland leads the pack with a decrease of 1.7 percentage points, followed closely by Massachusetts with a 1.3-point drop.
What's Intriguing: The recent swings in unemployment rates in states like New Jersey, D.C., and California align with a recession indicator known as the Sahm Rule, as pointed out by ZipRecruiter chief economist Julia Pollak.
The Sahm Rule: This rule, devised by former Fed staffer Claudia Sahm, serves as a real-time gauge of recession. It's based on the observation that when the three-month national average of the jobless rate exceeds 0.5 percentage points above the lowest rate of the past year, it's a strong indicator that a recession is underway.
State vs. National: State-level unemployment rates tend to be more volatile than the national rate due to smaller survey samples and localized economic dynamics. This is why some states might trigger the Sahm Rule even when the national economy appears solid.
The Bigger Picture: While localized economic challenges might seem isolated, they can be early warning signals for broader national issues.
Takeaway: As Julia Pollak emphasizes, "While some localized downturns remain contained, local trends can often expand to other regions or have downstream effects." These shifts can be crucial indicators that are challenging to spot in nationwide data but are essential for local communities and might hint at broader economic trends to come.