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Economic growth in the U.S. is slowing down. Are we headed for a recession?


We've got some new numbers about the economy this week. Growth is slowing some, but consumer spending was still healthy in the first quarter. But inflation is still high. And you remember all the drama with some banks earlier this year. That's why some economists are still predicting that a recession that they've been talking about for some time could still come in the second half of the year. Claudia Sahm is an economist. During her time at the Federal Reserve, she developed a method of predicting economic downturns. It's the Sahm Rule. So we called her to tell us what all these different indicators are telling her, and she's going to tell us.

Claudia Sahm, welcome. Thanks so much for joining us this morning.

CLAUDIA SAHM: Thank you.

MARTIN: So I'm not going to ask you what goes into the Sahm Rule. I'm sure some want to know. But I'm just going to ask you what the Sahm Rule is telling you right now. Are we headed for a recession? And if so, when?

SAHM: In fact, the Sahm Rule is really simple by design. It's about the unemployment rate - changes in the unemployment rate. We have seen unemployment hover at a 50-year low for almost a year. The Sahm Rule tells us we are not in a recession. And frankly, we haven't seen the unemployment rate going up. Now we haven't seen it yet, right? It's not a guarantee that we won't be in a recession later in the year, but we're not there right now.

MARTIN: Well, that's encouraging. What might push the country over into a recession?

SAHM: Bad events - things that come out of nowhere and surprise us. Those are often what brings us into a recession, whether it's a mortgage market falling apart in the Great Recession or the dotcom bubble bursting in 2001. Usually, it's something really bad that pushes us over the edge of the cliff, and then it's kind of a freefall until we get things back on track. There are certainly some events we're facing, and particularly the debt ceiling and those debates right now, that would just unsteady things - right? - could push us over the cliff. We're not in the strongest place possible. So that's a real risk, and we should do everything we can to keep those events from happening.

MARTIN: Totally understand your point about the debt ceiling issue. But, you know, just something that I think people have been following - the Fed has raised interest rates several times since last year. That's an - obviously an effort to tame inflation. But now we're seeing big layoffs in tech and other industries. How do you interpret those events? Are we at a tipping point on inflation? Are those layoffs - is there something that we're seeing in those layoffs that do speak to the unemployment rate?

SAHM: Clearly every job loss is a hardship on the individuals who go through that. And there are industries - tech is definitely one of them - that has seen a lot of layoffs recently. And yet, the way to think about a lot of the layoffs we're seeing right now is a rebalancing. The tech industry's really boomed when COVID shut everything down. It's - you know, we would like to forget about the pandemic. We'd like to think it's behind us. It was extremely disruptive to our lives and to the economy, and it's taken a long time to work things out. And what's happening in the tech sector, at least a large part of it, is just that rebalancing, because, again, if we look at the job market as a whole, it's really good, and we need to celebrate, and particularly protect, that progress we've made.

MARTIN: Just as briefly as you can before we let you go, summer vacation season is nearly here. We're seeing rising costs across the board. I'm just wondering if fears of a recession will affect travel plans, and will - and could that have an effect on the economy?

SAHM: Well, if we rewind to this time last year, GDP fell, right? So in the first half of last year, we had a lot of discussion - are we in a recession? People went on vacation last summer, right? So prices are high. Inflation is too high. The level of prices has risen quite a bit. I would fully expect people - I know I will - to cut back or try and find some cheaper options for travel this summer. But up to this point, the American consumer has kept coming back. And that's a lot. Like, compensation, wages and salaries - overall, they've been growing faster than inflation. There are people who have money in the bank that never have had money in the bank. Now the more the Fed does, the more things grind along, that'll be less the case.


SAHM: And I also would say the recreation, the hotel, the...


SAHM: ...A lot of what we think of as leisure, that's only about 5%...


SAHM: ...Of the U.S. - or - of consumer spending.

MARTIN: All right. We're going to have...

SAHM: So it hits us.

MARTIN: OK. We're...

SAHM: And yet, it's not the big picture.

MARTIN: We're going to have to leave it there for now. Claudia Sahm is a former Fed economist and founder of Sahm Consulting.

Thanks so much for joining us.

SAHM: Thank you. Transcript provided by NPR, Copyright NPR.