A new economic warning is raising eyebrows as America’s unemployment rate edges higher, prompting debate over what it could mean for the U.S. economy moving into 2026.
Economist Justin Wolfers, a professor of economics and public policy at the University of Michigan, cautioned this week that recent labor data may be signaling growing weakness. In a post on X, Wolfers pointed to a recession indicator known as the “Sahm Rule,” a benchmark monitored closely by the Federal Reserve.
The Sahm Rule is triggered when the unemployment rate’s three-month average rises by at least 0.5 percentage points compared with its lowest level over the past year. According to Wolfers, that threshold has now been reached.
The unemployment rate averaged 4.5 percent from September through November, up from a low of 4.0 percent earlier in the year. “That’s a half-point increase,” Wolfers wrote. “It’s blinking red.”
Recession fears had cooled in recent months after U.S. economic growth exceeded expectations and tariffs failed to cause the immediate inflation spike many critics predicted. However, some economists continue to warn that the economy may be more vulnerable than headline numbers suggest.
Several analysts argue that only a handful of negative shocks—such as instability in the technology sector or an artificial intelligence market correction—could push the country into a broader slowdown. Others believe some states may already be experiencing localized declines.
President Donald Trump recently gave the U.S. economy an “A+++++” grade in an interview, highlighting strong growth and private-sector resilience. Still, the final months of 2025 have brought challenges for many households, including elevated prices, declining consumer confidence, and signs of slower hiring.
Wolfers issued his comments following the release of a delayed employment report, which combined October and November data after disruptions caused by the federal government shutdown.
According to the Bureau of Labor Statistics, the economy added 64,000 jobs in November, beating most forecasts. However, October payrolls showed a loss of 105,000 jobs. Federal officials attributed much of that decline to government workers who accepted deferred resignation buyouts earlier this year and officially exited payrolls in October.
While economists welcomed the return of employment data after the shutdown, some remained cautious. Bankrate senior economic analyst Mark Hamrick described the overall picture as concerning, noting that underlying trends remain weak.
Revisions to prior months also reduced job totals by 33,000. Wolfers argued that the data suggests little overall employment growth since April. Meanwhile, the unemployment rate climbed to 4.6 percent, its highest level since September 2021.
Not everyone agrees that a recession is imminent. Claudia Sahm, the former Federal Reserve economist who developed the Sahm Rule, said rising unemployment deserves attention but has not yet reached levels typically associated with the start of a recession.
She also noted that the rule relies on consistent monthly data, and the absence of an official October unemployment rate complicates short-term analysis.
“I would be cautious using standard rules of thumb over the next few months,” Sahm said.
Market analyst Daniela Hathorn echoed that view, saying the latest figures point to a labor market that is slowing, not collapsing. She noted modest job growth, slightly higher unemployment, and easing wage increases compared with earlier in the year.
White House officials pushed back against pessimistic interpretations. National Economic Council Director Kevin Hassett emphasized that recent job losses were heavily concentrated among federal employees who voluntarily accepted buyouts, while private-sector employment has continued on a steady upward path.
The next key economic data point arrives Thursday, when the government releases its November inflation report—figures that could play a major role in shaping expectations for interest rates, consumer spending, and the overall direction of the U.S. economy.