August 31, 2023
The nationwide unemployment rate remains low and stable, but it is increasing quickly in several key tech industry-focused metros – including San Francisco, CA; San Jose, CA; and Austin, TX. (It remains low and stable or up only slightly in other tech-focused metros such as Seattle, WA and Denver, CO.)
Over the past year, the unemployment rate has increased by 0.7 percentage point to 3.4 percent in San Francisco, CA; by 0.9 percentage point to 3.4 percent in San Jose, CA; and by 0.7 percentage point to 3.5 percent in Austin, TX. The increases over the past year in these metros are consistent with a common recession indicator. Nationwide, the unemployment rate has been effectively flat over the same period.
For the Austin, TX metro area, it is the first time that the local unemployment rate is approaching the national unemployment rate since 2003 (aside from the depths of the pandemic). For San Francisco, CA and San Jose, CA it is approaching levels last seen in 2016 (also excluding the depths of the pandemic).
One common-referenced indicator that an economy is falling into a recession is known as the Sahm Rule – after economist Claudia Sahm. The Sahm Rule suggests that when the smoothed unemployment rate increases by at least 0.5 percentage points over its 12-month low, a recession is very often imminent. Sahm herself has cautioned about over-reliance on this particular indicator, recognizing that recessions are more complex than what is captured by any single metric.
It is important to keep in mind that the unemployment rate in all three of these markets remains below the national rate and lower than it was during recent periods of slow growth short of recessions. Local recessions are not the same as a national recession. Still, in a rapidly evolving economy where aggregate trends are likely obscuring substantial regional variation, it can be a useful signal.
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