An economist is cautioning that the latest uptick in the U.S. unemployment rate may be a more troubling sign for the labor market—and the broader economy—than it appears at first glance.
Justin Wolfers, a professor of economics and public policy at the University of Michigan, wrote on X that it’s “hard to tell” whether the country is already slipping into a downturn. Still, he pointed to a key recession signal: the “Sahm Rule.”
The Sahm Rule—often used as an early-warning heuristic—tracks whether the unemployment rate’s three-month moving average has climbed by 0.5 percentage points compared with the previous year’s low. Wolfers noted that the three-month average rose to 4.5% for September through November, after Tuesday’s jobs report showed unemployment reaching a four-year high. That compares with 4.0% in January.
“That’s up half a point, and it’s blinking red,” Wolfers wrote.
Why It Matters
Recession fears cooled earlier in the fall, helped by stronger-than-expected GDP growth and the fact that tariffs did not immediately trigger the sharp price spikes some analysts had anticipated.
But concerns haven’t disappeared. Some economists argue the economy could still be vulnerable to sudden shocks—such as a potential AI “bubble” bursting—and suggest portions of the country may already be experiencing downturn-like conditions.
President Donald Trump recently gave his economic performance an “A+++++” in an interview with Politico. At the same time, the closing months of 2025 have brought renewed strain for many households: elevated costs, surveys showing back-to-back drops in consumer confidence, a prolonged hiring slowdown, and a rising drumbeat of layoff announcements.
What To Know
Wolfers issued his warning after Tuesday’s employment report, which combined payroll figures for October and November. Regular releases had been delayed by the government shutdown.
The Bureau of Labor Statistics (BLS) reported that the economy added 64,000 jobs in November—above most forecasts—but lost 105,000 jobs in October. The agency attributed much of October’s decline to federal employees who accepted the administration’s deferred resignation offer earlier this year and rolled off government payrolls during the month.
While economists welcomed the return of government employment data after the shutdown, Bankrate senior economic analyst Mark Hamrick told Newsweek: “The not-so-good news is that it isn’t pretty.”
The BLS also revised job gains for the prior two months down by a combined 33,000. Wolfers wrote on Tuesday that the headline figures point to “VIRTUALLY NO EMPLOYMENT GROWTH since April.”
Meanwhile, the unemployment rate rose to 4.6%, its highest level since September 2021—supporting Wolfers’ cautious interpretation of the Sahm Rule signal.
However, Claudia Sahm—the former Federal Reserve economist who created the measure—told Newsweek that while a rising unemployment rate “is a concern,” it is not yet “at levels typically seen in the early stages of a recession.”
She also emphasized a complication: the Sahm Rule relies on a three-month average, and there was no official October unemployment rate. The BLS did not calculate or release it, citing data-collection issues linked to the shutdown.
“I would be cautious with standard ‘rules of thumb’ for the next few months,” Sahm said.
What People Are Saying
Market analyst Daniela Hathorn, commenting to Newsweek after Tuesday’s report, said the numbers reinforce a picture of slowing momentum.
“The figures confirm that job growth remains modest and the labor market continues to slow, with 64,000 payrolls added in November after a dip in October, a clear deceleration from prior months,” she said. Hathorn added that the unemployment rate rose to 4.6%—slightly higher than expected—while wage growth has continued to ease, pointing to a labor market “losing steam rather than overheating.”
Kevin Hassett, director of the National Economic Council, told CNBC that the drop in payrolls was largely driven by the federal buyout program. He said roughly 160,000 federal workers exited after being given time to depart through the fall, and argued that private-sector job gains remain consistent with what the economy has shown throughout the year.
What Happens Next
The next major data point arrives Thursday, with the release of November’s inflation report.
