Recession Indicators IN FOCUS...Who's "more concerned" than she has been at any point in this cycle that the U.S. could be headed to another recession

A well-regarded economic rule holds that if the unemployment rate rises by half a percentage point quickly enough, the economy is in recession.

Every Rule Has Its Exception. That

May Be

the Case for This Recession Indicator.

By Megan Leonhardt
Aug 01, 2024, 1:15 am EDT

Barron's

2 hours ago

The current jobless rate stands within a hair’s breath of doing that in Friday’s jobs report, and yet even the creator of the rule, former Fed economist Claudia Sahm, doesn’t expect a downturn right away.

The reason is that some of the expansion in the jobless rate could be created by growth in immigration, says Sahm, who currently serves as chief economist for New Century Advisors. Moreover, the unemployment rate is moving from a historic low to a more normal rate.

The Sahm rule is one of several recession indicators that no longer seem to be reliable in today’s postpandemic economy. 

The economy was distorted by supply-chain shutdowns, massive government stimulus, and soaring consumer demand that produced high inflation. 

Now, the economy is calming, but it still isn’t entirely normal.

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None of this means that we should disregard growing unemployment rates. Indeed, Sahm says she’s now “more concerned” than she has been at any point in this cycle that the U.S. could be headed to another recession, though probably not this year.

• More precisely, the Sahm rule signals a recession when the three-month moving average of the national unemployment rate rises by 0.5 percentage points or more, relative to its low during the previous 12 months. 
• The indicator hit 0.43 percentage points in June after the unemployment rate hit 4.1%, on the brink of the threshold.

While triggering the Sahm rule would require July’s jobless rate to hit 4.2%, economists surveyed by FactSet currently believe that the unemployment rate will remain steady at 4.1% this month. 

But a 4.2% rate is likely in the coming months as higher interest rates from the Federal Reserve continue to weigh on employers and their hiring plans.

“I expect the unemployment rate to drift up further this year. ​​I expect that the Sahm rule will trigger—we’re not very far from it,” says Sahm. 

“But it’s unlikely that come September or October, that the U.S. economy is in a recession.”

Sahm says the rule is likely broken this time around because the pandemic years haven’t followed the normal patterns of a recession and recovery business cycle. 

There’s a high likelihood that some of the recent gains in unemployment is being driven by a labor force expansion, led by immigration, she says. 

That could be skewing the indicator’s effectiveness.

But it’s also just as clear that there’s some real “garden variety” unemployment increases occurring as well, Sahm says. 

• So rising unemployment cannot be shrugged off.

Sahm suspects that while the rule’s threshold is currently 0.5 or more, it may need to be shifted higher in this environment to account for the effects of the growing workforce. 

Whether that’s just a temporary break or a permanent shift remains to be seen.

“The story is complicated,” Sahm says of the current labor conditions. 

“We’ve had this drifting up. It’s not just little blips in the data—this has been going on for a while. So what is it that makes it stop?”

Write to Megan Leonhardt at megan.leonhardt@barrons.com

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PAYLOAD RESEARCH: Boeing’s Starliner has cost at least twice as much as SpaceX’s Crew Dragon

Boeing has some work to do to find a long-term fix for safety issues on future Starliner missions

Boeing’s Starliner has cost at least twice as much as SpaceX’s Crew Dragon
"Risk remains that we may record additional losses in future periods."
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Boeing's Starliner has cost at least twice as much as SpaceX's Crew Dragon | Ars Technica

Boeing announced another financial charge Wednesday for its troubled Starliner commercial crew program, bringing the company's total losses on Starliner to $1.6 billion.

In its quarterly earnings report, Boeing registered a $125 million loss on the Starliner program, blaming delays on the spacecraft's still-ongoing Crew Flight Test, the program's first mission to carry astronauts into orbit. 

This is not the first time Boeing has reported a financial loss on Starliner. 

Including the new charge announced Wednesday, Boeing has now suffered an overall loss on the program of nearly $1.6 billion since 2016.

These losses have generally been caused by schedule delays and additional work to solve problems on Starliner. When NASA awarded Boeing a $4.2 billion contract to complete development of the Starliner spacecraft a decade ago, the aerospace contractor projected the capsule would be ready to fly astronauts by the end of 2017.
It turns out the Crew Flight Test didn't launch until June 5, 2024.

In a separate announcement Wednesday, Boeing named Kelly Ortberg as the company’s CEO, effective August 8. He will replace Dave Calhoun, whose tenure as Boeing’s chief executive was marred by scandals with the 737 MAX passenger airplane. Ortberg was previously CEO of Rockwell Collins, now known as Collins Aerospace, a major supplier of avionics and other parts for the aerospace industry.

Boeing is on the hook
When NASA selected Boeing and SpaceX to develop the Starliner and Crew Dragon spacecraft for astronaut missions, the agency signed fixed-price agreements with each contractor. These fixed-price contracts mean the contractors, not the government, are responsible for paying for cost overruns. . . .

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