"Sahm Rule" Basically Triggered As U/E Rates (And Participation) Rise

The Household Survey of July's Employment Report was surprisingly weak, even beyond the well-noted jump in the unemployment rate to 4.25% (4.05% prior). The details all leaned disinflationary from a monetary policy perspective, not least with the unemployment rate already shooting above the FOMC's median Dot Plot projection of 4.2% (see chart).

• The U-6 underemployment rate jumped 0.4pp to 7.8%. As such, both the U-3 headline rate and U-6 hit the highest since October 2021.
• The number of unemployed rose by 352k, the biggest rise since August 2023 and vs a 6-month average of 91k. Employment increased by 67k (vs the 114k Establishment number, a relatively narrow gap in comparison to the huge gulf seen over the past year), down from 116k as part of a volatile series. Part-time employment dropped 325k, the most in 3 months, with the number part-time for economic reasons up 346k, a 13-month high.
• The details from a supply-side perspective appeared disinflationary. The participation rate rose 0.1pp to 62.7%, when unrounded the highest since November 2023. This was driven by a sizeable increase in the prime-age 25-54 aged participation rate, up 0.3pp to 84.0%. Age 55+ participation was up 0.1pp at 38.3%, with 16-24 down 0.4pp to 55.5%.
• The labor force increased by 420k, a 4-month high. The employment to population ratio was steady at 60.0% for the 3rd consecutive month.

The "Sahm Rule" - when the latest 3 month moving average of the unemployment rate minus the minimum of the past 12 months exceeds 0.5 percentage points - was basically triggered in July (though technically, our calculation has the reading at "just" 0.49pp), adding to recession signals.

• Though it's worth noting that Fed Chair Powell downplayed this metric on Wednesday: “I would call it a statistical thing that has happened through history. A "statistical regularity" is what I would call it. It is not an economic rule where it is telling you something must happen.”