The July jobs report recently produced a reliable indicator of the economic slowdown

A weaker-than-expected jobs report for July was the most reliable sign of a recession that Wall Street is closely watching, stoking concerns about the health of the U.S. economy and sparking a sell-off. market power.

Employers hired 114,000 workers last month, the US Labor Department said in its monthly payrolls report released on Friday, missing the forecast of a gain of 175,000 by LSEG economists. The unemployment rate rose to 4.3%, the highest level since October 2021.

“The July jobs report is seen as a warning of a recession, and markets are responding accordingly,” said Bill Adams, chief economist at Comerica Bank in Dallas.

When the unemployment rate suddenly rises, the so-called Sahm’s law applies. Named after Federal Reserve economist Claudia Sahm, this rule has successfully predicted every recession since 1970.

US JOB GROWTH SLOWS TO 114K IN JULY AS JOBS LACK UNEXPECTEDLY.

It makes clear that the economy is in the early stages of a recession when the three-month unemployment rate is at least half a percentage point below its 12-month low. In the past three months, The unemployment rate increased by 4.13%, which is 0.63 percentage points higher than the 3.5% rate recorded in July 2023, which crossed the threshold.

The assumption is that an increase in unemployment indicates an increase in employment. When workers lose their jobs, they reduce spending, which causes businesses to go bankrupt. Those businesses now have more opportunities to cut jobs, thus perpetuating the cycle. Historically, after the Sahm Act was introduced, the unemployment rate continued to rise.

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“Sahm’s law provides an important piece of historical data,” said Preston Caldwell, chief economist at US Morningstar. “Once the unemployment rate rises, it is likely to continue to rise. Rising unemployment is part of the negative effects of recession.”

The rule uses a three-month monthly average to smooth out any inconsistencies in the data and capture the general trend of the labor market, rather than relying on a single data point that may ‘ whether it be something outside.

However, Sahm – the lawmaker – suggested that the increase in unemployment this time may not be a sign of the coming recession. He noted that the rise in the unemployment rate is not due to layoffs and poor monthly salary figures, but to the increase in the number of workers, including immigrants.

“We’re still in a good place, but until we see signs of stability, stability, I’m worried,” Sahm told The Wall Street Journal.

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Hiring may also have been disrupted last month by Hurricane Beryl, which hit the Texas coast in early July.

Ticker	Security	Finally	Change	Change %
I: COMP	NASDAQ COPY INDEX	16776.163609	-417.98	-2.43%
SP500	S&P 500	5346.56	-100.12	-1.84%
It is: DJI	DOW JONES INCREASES	39737.26	-610.71	-1.51%

The jobs data adds to growing evidence that the economy is weakening despite continued inflation and higher interest rates, and raises questions about whether the Fed can successfully engineer of easy descent.

Policymakers voted to keep interest rates steady above two decades on Wednesday, but opened the door to a rate cut at their next meeting in September. Many investors are now buying into the possibility of a further 50 basis point decline due to a sharp slowdown in job growth and growing fears of a recession.

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“Today’s jobs report confirms that the economy is on a weaker path,” said David Donabedian, chief investment officer of CIBC Private Wealth. “There are already concerns that the Fed is late to the party on cutting rates, and this report feeds into that report. There is a growing risk of a recession without if the Fed acts fast now.”

Stocks fell on Friday morning, with the Dow Jones Industrial Average down more than 900 points. The Nasdaq fell more than 3%, entering correction territory, while the S&P 500 fell 2.6%.