The Blubber

Unemployment jumped from 3.4% in April to 3.9% in October, per Axios.


The U.S. labor market has demonstrated remarkable resilience, exhibiting some of the healthiest conditions in recent memory. However, Friday's jobs report has raised concerns about the sustainability of this trend.

Why it matters: Despite still being quite low, the unemployment rate has experienced a substantial increase since spring, a pattern typically seen before a recession.

Unemployment rose from 3.4% in April to 3.9% in October. What was previously described as the jobless rate fluctuating at a low level now appears to be a more definitive upward trend.

Historically, once the rate experiences such an increase, it tends to continue rising.
The Sahm Rule, a commonly used indicator created by former Fed staff economist Claudia Sahm, points to an elevated risk of a recession. It looks at the gap between the three-month average of the unemployment rate (currently 3.83%) and the lowest three-month average over the past year (3.5%, reached in the spring).

When the gap exceeds 0.5 percentage points, it signals a strong real-time indication that a recession is already underway.
Currently, the indicator is below that threshold at 0.33. However, research by Ryan Nunn, Jana Parsons, and Jay Shambaugh shows that within this range, there is a historical 40% chance that a recession is already occurring or imminent.
What they're saying: Skanda Amarnath from Employ America suggests that there are reasons to be less alarmed by the recent rise in unemployment than historical records may imply.

The jobless rate among prime working-age adults (25 to 54) has increased less than the overall rate, and the employment-to-population ratio has held up well.
Amarnath suggests that there may be issues with the Labor Department's seasonal adjustment process that could be exaggerating current unemployment but might lower it in the future.
Yes, but: Amarnath notes, "Once unemployment rates rise beyond a certain point, they tend to snowball, and policymakers are playing a dangerous game of catch-up."

For this reason, even if the increase is a partial data irregularity, caution from the Fed is essential.
The bottom line: The post-pandemic recovery has defied historical economic norms, with traditional indicators and rules of thumb facing challenges. It wouldn't be surprising if the Sahm Rule and unemployment momentum effects are among those affected.