Having done what Democrats do, which is spend taxpayer cash, it looks like the piper is coming for payment.

Via Instapundit, Fortune magazine's Jason Ma reports that a key indicator for recession appears to be activating.

The U.S. unemployment rate ticked up to 4.1% in June from 4% in the prior month, nearly triggering a reliable recession indicator.

 

While unemployment is still historically low, its rate of increase could be a sign of deteriorating economic conditions. That’s where the so-called Sahm Rule comes in.

 

It says that when the three-month moving average of the jobless rate rises by at least a half-percentage point from its low during the previous 12 months, then a recession has started. This rule would have signaled every recession since 1970.

 

Based on the latest unemployment figures from the Labor Department’s monthly report on Friday, the gap between the two has expanded to 0.43 in June from 0.37 in May.

 

It’s now at the highest level since March 2021, when the economy was still recovering from the pandemic-induced crash.

 

The creator of the rule, Claudia Sahm, was an economist at the Federal Reserve and is now chief economist at New Century Advisors. She has previously explained that even from low levels a rising unemployment rate can set off a negative feedback loop that leads to a recession.

Previously: Payrolls Rise 206K After Huge Downward Revisions As Unemployment Rate Jumps To Three Year High. “In keeping with the BLS’ other favorite gimmick of representing part-time jobs growth as the primary driver of the US labor market, in June, the number of part-time workers rose 50K to 28.1 million while full-time workers dropped by 28K. This means that since June 2023, the US has added 1.8 million part-time jobs and lost 1.6 million full-time jobs.”

With the onset of Covid, the Fed hit its monetary accelerator, causing M2 to explode, reaching an unprecedented annual rate of growth of 26.7 percent in February 2021. As a result, we predicted in the Wall Street Journal that inflation would surge to 9 percent per year. It peaked at 9.1 percent per year in June 2022. By using the quantity theory of money, we hit the bullseye.

Then, the Fed flipped the switch on its printing presses. Since March 2022, the money supply has been falling like a stone. With that, we altered our inflation forecast. By the end of this year, we forecasted that the headline CPI would fall to between 2 percent and 5 percent. Yesterday’s inflation report showed the CPI had fallen to an annual rate of 3.1 percent. With only one month to go until the end of the year, it looks like the quantity theory of money will deliver another inflation bullseye.

But that’s not all. The contracting money supply means that the economy is running on fumes. And with the normal long lag between substantial contractions in the money supply and changes in economic activity, the U.S. economy is on schedule to tank in 2024. Given the current course of M2’s contraction, we now forecast that inflation will fall below the Fed’s 2 percent target in 2024, and decline further into outright deflation in 2025.

Just how substantial has the Fed’s money-supply reversal been? As the accompanying table shows, there have only been four such contractionary episodes since the Fed was established in 1913. Interestingly, there has not been a contractionary episode greater than the current one since the Great Depression. By rejecting the quantity theory of money and the money supply, Powell and the Fed have given us whiplash: first an unprecedented explosion in M2 and now a contraction that, to date, is already the third largest in the Fed’s history.

And what did the four prior episodes of monetary contraction produce? With a lag, they all produced a recession. It’s time to buckle your seatbelts.

Image: Photo illustration by Monica Showalter with use of Pixabay / Pixabay License images