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By Suzanne Blake
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Economic expert Heather Long said that Friday's unemployment report could be indicative of a looming recession, with one indicator being a "big warning sign."
In July, the unemployment rate reached 4.3 percent, a significant bump up from 3.5 percent the year prior. The unemployment rate was also the highest since October 2021. Meanwhile, employers only added 114,000 jobs last month, far below the 175,000 economists had predicted.
Last month's numbers are now triggering the "Sahm rule," which means that if unemployment numbers increase by at least a half percentage point over a year, the country is likely headed toward a recession.
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"It's possible this time is different," Heather Long, an economic columnist for The Washington Post wrote on X, formerly Twitter, on Friday. "But this is a big warning sign that the job market (and possibly broader economy) is really slowing fast."
The Sahm rule has properly predicted every recession since the 1970s, but some economists say other factors could be at play today and that the United States might be able to avoid a full-blown recession.
Claudia Sahm, who created the rule and is the chief economist at New Century Advisors, said before Friday's report that "a recession is not imminent'' even when the unemployment numbers surpass a half percentage point in a year.
"Once you have a certain momentum going to the downside, it often can get going,'' she previously told the Associated Press, adding that the rule is currently "not working like it usually does, but it shouldn't be ignored.''
However, some believe unemployment was particularly high in July due to an uptick in immigration and Americans returning to work after the pandemic, but not actually a rise in company layoffs. Hurricane Beryl also could have played a role.
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"It's hard to say if a worse-than-expected monthly jobs number is a definite sign of a recession on the way, but it's certainly not a good thing," Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, told Newsweek. "Economists have known for quite some time that employment has been the strongest factor holding our current economy together. It's the foundation for virtually all purchasing power. It's too soon to say if a weaker employment number means that foundation is faltering, but it's a worrying sign."
Friday's report showed that the share of prime working-aged Americans with a job grew to 80.9 percent, which some economists believe is a better reflection of today's economy.
"This is one of the best indicators in the report - I put more weight on it than on the unemployment rate," Guy Berger, the director of economic research at the Burning Glass Institute, wrote on X, on Friday.
When it comes to which industries showed strength in July, health care and construction led the way, adding 55,000 and 25,000 jobs, respectively. Meanwhile, leisure and hospitality added 23,000 jobs, government jobs increased by 17,000 and transportation and warehouse jobs surged by 14,000.
However, manufacturing and professional and business services saw minimal growth, information tech companies lost 20,000 jobs, and financial activities cut 4,000 jobs.
President Joe Biden said despite the unemployment numbers, business investments remain strong.
"Since Vice President [Kamala] Harris and I took office, our economy has created nearly 16 million jobs, average unemployment has been lower than during any administration in 50 years, and incomes have risen faster than prices," he said in a statement.
The president continued: "Today's report shows employment is growing more gradually at a time when inflation has declined significantly. Business investment remains strong thanks in part to our investing in America agenda, which is creating good-paying jobs in communities that have been left behind. There's more to do, but we're making progress growing the economy from the middle out and the bottom up."
Biden acknowledged prices were still too high, and said his administration would continue to work on mitigating the current inflation.
The signs of economic slowdown could prompt the Federal Reserve to consider a 25-basis point rate cut in September, but that decision will likely also depend on the next job report and upcoming consumer price index data, according to Kevin Thompson, a finance expert and the founder and CEO of 9i Capital Group,
"The path remains uncertain, potentially leading to significant implications as the election approaches," he told Newsweek.
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