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Writer's pictureDoug MacGray
Aug 44 min read

The Sahm Rule and 25 or 6 to 4

August 4, 2024


COOLING LABOR MARKET: In July, the U.S. unemployment rate increased from 4.1% to 4.3%. 113,000 net new jobs were added. Furthermore, the U.S. Bureau of Labor Statistics updated May and June's reports, subtracting 29,000 from the reported jobs in those two months. This was a surprise to the downside. But, the main driver for the increase in the jobless rate is that more people jumped back into the job market. The Labor Force Participation Rate ticked up a bit last month. Average hourly earnings for American workers came in 3.6% higher in July than a year before. That number was 3.9% last month.



THE SAHM RULE:  There are many "recession indicators," that economists look to to determine whether we are in or headed for a recession. One is the Sahm Rule, created by economist Claudia Sahm. According to the Sahm Rule, if the average unemployment rate over three months rises to a half-percentage point or more above the lowest three-month average over the previous year, we are in a recession. The July labor report triggered the Sahm Rule. The August report will be interesting because many economists believe July's numbers were substantially affected by Hurricane Beryl. As those temporary job losses quickly come back online, the unemployment rate may bounce back a little next month. But breaking through a technical recession indicator did not help market performance last week.


THE FED DID NOT BUDGE:  As expected, the Fed did not lower rates last week. After the July labor report came out the next day (see above), many wondered if the Fed is a step late in lowering rates after being late in raising rates. In announcing no change to the federal funds rate, it stated that inflation "has eased over the past year but remains somewhat elevated," and job "gains have moderated, and the unemployment rate has moved up but remains low."  As to future rate cuts, the Fed "does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent." The Fed meets again in mid-September, and whatever its decision, it will be interpreted through a political lens.


SUMMER SWOON:  Investors shifted focus away from interest rates and toward recession indicators, hanging their hats on the recession fear trade. Stocks tumbled, and investors threw their dollars into safer assets. Bonds rallied. The NASDAQ is now down over 10% from its July 10 high. The Russell 2000, which had been rallying swooned, falling by more than 6% late in the week.  



LONGER-TERM PERFORMANCE:  Below are the annualized three-year and five-year numbers for these same indices.  



BANK OF ENGLAND LOWERS RATES:  The Bank of England cut its key interest rate for the first time in over four years to 5%. UK inflation has come back down to the Bank of England's 2% target, but the rate cut vote was only 5 in favor, and four against. The U.S. is now an outlier with the UK, Europe, Switzerland, Sweden and Canada all having lowered rates this year.


EUROPEAN INFLATION PICKS UP:  The European Central Bank (ECB) cut its key interest rate for the first time last month. But Europe's consumer prices increased in July to an annual increase of 2.6%. Now another rate cut in September for the ECB is up in the air.


NOSTALGIC CONCERT:  We went to Camden to see Chicago and Earth, Wind and Fire. These bands are getting long in the tooth and filled with replacements. But the music did not disappoint. Chicago has no original singers left, but the majority of the iconic horn section was present and doing their thing quite well. Phil Bailey still highlights Earth, Wind and Fire, and his voice, at 73, has not lost anything. This was Wednesday night. Their songs have been earworms in my head since, but in a good way.  



A WONDERFUL WEEK:  My daughter and son-in-law just got back from a wedding in Greece. My wife and I babysat for a week. It was a great opportunity to get to know MacKenzie better, and to win her over. Early in the week, I was seeing this face a lot.



by the end of the week, I saw more of this face.



Have a great week!


Our purpose is to honor God by helping our clients see the objective, find the path, and navigate past the obstacles to a more prosperous future.



Douglas R. MacGray, J.D., C.F.P. ®

President

Stonecrop Wealth Advisors, LLC

Direct | Cell | Fax

(610) 628 4545


Gotta be who you wanna be, don't let them tell ya differently. Got to go where you never gone. Going to have to try harder if we want to get along. Going to be good days and bad days you can never choose, happy ones and sad ones you know sometimes the winners going to lose. Gotta believe in something, ain't that true. Gotta believe in something; I believe in you. Gotta create things if you wanna make it, gotta give before you take it, gotta do things you never done. Don't wait to long before your times has come.

Donovan Frankenreiter, from the song Gotta Believe


"But encourage one another daily, as long as it is still called 'today.'" Hebrews 3:13 (NIV)


SOURCES:


(c) 2024 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved


*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.

*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.

*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.


Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.

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