Economy Faces Sudden Downturn After Unemployment Surprise

Estimated read time 3 min read
  • An unexpected rise in the unemployment rate suggests a surprise recession could hit the US economy, according to David Rosenberg.
  • The unemployment rate is now 0.5 percentage points above its cycle low to 3.9%, which Rosenberg says is a worrying sign.
  • “It messes up the soft landing narrative because once it rises this much from the lows, the recession nobody ever sees coming arrives,” he said.

Economist David Rosenberg is growing increasingly concerned that a surprise recession could hit the US economy.

Rosenberg’s concern stems from the February jobs report, which showed the unemployment rate unexpectedly rise to 3.9% from 3.7%. That reading puts the soft landing narrative at risk, according to Rosenberg.

“Now that the jobless rate is up 0.5 of a percentage point from the January 2023 cycle low, it messes up the soft landing narrative because once it rises this much from the lows, the recession nobody ever sees coming arrives,” he said in a Friday note.

Rosenberg’s nod to a 0.5 percentage point rise in the unemployment rate likely refers to the Sahm Rule, created by economist Claudia Sahm, which suggests that when triggered, the economy is in the early months of a recession.

But the Sahm Rule isn’t triggered until the three-month moving average of the national unemployment rate is 0.5 percentage points or more above its low over the past year, not the absolute unemployment rate.

The Sahm Rule is currently 0.27 percentage points above its one-year low, so the unemployment rate would have to continue to trend higher to trigger the recession indicator.

“PSA: – The Sahm rule did *not* trigger. – We are NOT in a recession. – Three-month averages are your friend.” Sahm posted to X on Friday.

But the rise in the unemployment rate is not the only factor concerning Rosenberg.

Parsing through the jobs report, Rosenberg said that negative revisions of 167,000 to the December and January payroll reports suggest that the US jobs market isn’t growing. 

When accounting for the Birth-Death model on a seasonally-adjusted basis, “then with the revisions, the survey itself dropped -3,000 in February. The labor market, contrary to popular opinion, is contracting,” Rosenberg said.

Rosenberg also highlighted that while there was strength in hiring in health care, government, and restaurants, net layoffs continued to pick up steam in the technology and banking sectors. 

“Meanwhile, one of the best leading job market indicators out there in employment in the temp-help agency subsector, and payrolls here sank -15,000 last month,” Rosenberg said, adding another worry to the February jobs report.

All-in, Rosenberg continues to take a defensive stance in his views on the US economy and stock market.

“I will still not be chasing this thing,” Rosenberg said of the soaring stock market. “As I recall as a child, the tortoise was the one who won the race.”