Source: Jin10 Data
Analysts point out that the slow increase in unemployment rate in the United States may trigger the 'Sam Rule'.
There are increasing signs that the labor market is slowing down, and the nonfarm payroll report in June is particularly important.
So far, the total number of new jobs created in 2024 is 1.24 million, a monthly decrease of about 0.05 million compared to the same period last year. Economists surveyed by Dow Jones expect the report to show an increase of 0.2 million new jobs, lower than May's 0.272 million.
From a historical perspective, the pace of job growth remains steady. However, there are indications that the economic situation may be softening, which could portend broader economic weakness in the future.
Nick Bunker, head of economic research at Indeed Hiring Lab, said, "As this report comes out, there is more uncertainty about the economic outlook than there was a few months ago. Specifically, I am more concerned about the unemployment rate, which has been slowly rising."
The unemployment rate did rise slightly to 4% in May, the first time it has reached that threshold since January 2022, up from 3.7% a year ago. Forecasts suggest that the unemployment rate will remain at this level.
Normally, a 4% unemployment rate would be cause for celebration rather than concern. However, some economists are concerned about how today's rate compares to levels over the past year.
The May unemployment rate is 0.5 percentage points higher than the low point of 3.5% set in July 2023, which could trigger a recession indicator known as the "Sam rule." The Sam rule refers to when the three-month average unemployment rate is 0.5% higher than the low point of the unemployment rate, the economy is in recession.
While there is little data to suggest an imminent recession in the US economy, the trend in the unemployment rate is causing some concern.
Bunker said, "If the unemployment rate continues to rise slowly, I do not think this means we are likely to trigger the 'Sam rule,' or any recession-predicting indicator based on the unemployment rate. That said, the possibility of this happening has increased, even if it is not the most likely outcome at present."
The US economy slowed down in the first half of 2024. The first quarter GDP annual growth rate was 1.4%, while the Atlanta Fed's tracking of the second quarter growth rate was only 1.5%.
In addition, inflation worries persist, which may make the Fed reluctant to cut interest rates for a longer period of time.
In addition to the main employment and unemployment data, market participants and economists will also focus on several other key indicators.
Furthermore, there is a discrepancy between the nonfarm employment numbers provided by businesses surveyed by the US Labor Department and the number of working households reported in the report.
While business surveys show that employment has increased by about 2.8 million over the past 12 months, the number of households used to calculate the unemployment rate has increased by only 0.376 million. Economists generally believe that the nonfarm report is more reliable and less volatile because it covers a larger sample size, but this difference has still drawn attention.
Economists also say that working hours and average wages will be watched as a measure of inflation.
The agency predicts that the month-over-month wage growth rate will be 0.3% and the year-over-year wage growth rate will be 3.9%. If this forecast is correct, it will be the first time the year-over-year growth rate has fallen below 4% since June 2021.
Editor/Lambor