The Blubber

Donald Trump’s message to American voters has remained steady as he campaigns for a second term in office: the economy under Joe Biden has been a failure.

Until recently, hard data had not supported Trump’s claims. The US has been the fastest-growing economy among the G7 industrial nations since the COVID-19 pandemic. Unemployment has remained historically low, and America's energy self-sufficiency helped it avoid the severe inflationary pressures faced by Europe after Russia's invasion of Ukraine.

However, Trump now has some evidence to reinforce his argument. The latest US jobs report, released last week, indicated a significant slowdown in the labor market. Payroll growth in July dropped to 114,000, roughly half the average of 215,000 seen over the previous 12 months, and well below economists' expectations. The unemployment rate also increased from 4.1% to 4.3%.

This data raised concerns. Financial markets had been betting on the US economy’s ability to withstand the effects of higher interest rates, supported by recent GDP figures showing annual growth close to 3%.

But the labor market's downturn sparked fears of a potential economic downturn. The 12% decline in Japan’s Nikkei index was partly fueled by worries that the world’s largest economy might be slowing rapidly.

The Federal Reserve uses a measure known as the Sahm rule to determine if the US economy is in recession. Named after economist Claudia Sahm, the rule suggests that when the three-month moving average of the US unemployment rate exceeds its low from the previous 12 months by 0.5 percentage points or more, the economy is likely in the early stages of a recession.

Last week’s job report from the Bureau of Labor Statistics showed that the Sahm rule was close to being triggered. According to the consultancy Capital Economics, the rule will be met next month unless the unemployment rate declines.