A recession can be foreshadowed by many symptoms, such as falling stocks or closing businesses. Lately, though, one particular recession indicator has caught my attention: employment numbers. In the last couple of weeks, we’ve seen a rash of employment data released that means lagging employment numbers could be the first domino to fall in the lead-up to a recession.
A slate of recent jobs data points to a tightening labor market.
According to Labor Department data released on July 3, 2024, continuing jobless claims increased to 1.86 million by the week of June 22, 2024. This was the highest number of such claims since November 2021. Shortly after this data was released, payroll company ADP issued their National Employment Report, which reveals that private companies are slowing the pace of new hires.
The most prominent sign of a potential recession from the job market came out on July 5, 2024, when the Bureau of Labor Statistics reported an increase in the nation’s unemployment rate, to 4.1% in June 2024, the highest level since October 2021.
A tightening labor market could signal the start of a recession.
Economist Claudia Sahm has noted that when the three-month moving average of the unemployment rate rises by half of a percentage point above its lowest level over the previous year, a recession follows. Known as the “Sahm rule,” this indicator has predicted every recession since 1970. Currently, our nation’s three-month unemployment rate moving average is 0.43%, just a hair shy of signaling a recession.
Even if unemployment isn’t quite meeting the boundary set by the Sahm rule, labor is a critical part of our economy. As Rubeela Farooqi, chief U.S. economist at High Frequency Economics, puts it, “Any change in the outlook for the labor market could have significant implications for the direction of the economy and monetary policy.”
Gold may serve as an important source of protection against a recession.
If our lagging jobs market does become the first step in a new recession, now may be the time to take action and ensure that your financial situation is in order. One way to help protect your hard-earned money is with a portfolio allocation to physical gold.
Gold has been recognized as a hedge against slow economic growth in the past. Were we to find ourselves in a new recession, gold’s long history of protecting against economic turmoil may make it a critical asset.
