The US job market is close to the 'danger zone,' famed economist Claudia Sahm says

The job market's highly accurate recession indicator is close to triggering its warning on the US economy.

• The job market is in the "yellow" zone as unemployment ticks higher, economist Claudia Sahm said.
• Sahm is the creator of a highly accurate recession indicator that's close to being triggered.
• The jobless rate rose to 4.1% in June, the highest level recorded since 2021.

The job market is edging closes to conditions typically associated with a downturn, according to the creator of a well-known recession indicator.

Claudia Sahm, a former Fed economist, voiced concerns about the state of the job market in an interview with Fox Business Network on Wednesday.

She's the creator of the Sahm Rule — the indicator that says a recession has started when the three-month moving average unemployment rate rises by half a percentage point over the three-month average in the prior 12-month period.

The indicator clocked in at 0.43% last month, meaning the unemployment rate is seven basis points away from triggering Sahm's historically accurate recession rule.

To be clear, the economy isn't on the cusp of a recession, Sahm said. Hiring remains strong overall, with the US adding a more-than-expected 206,000 jobs in June, according to the Bureau of Labor Statistics.

But hiring conditions are the yellow "yellow" zone, she said, as a big uptick in unemployment could easily push the US into recession territory.

"Things have cooled off. We should be concerned," Sahm said, later noting that increased immigration and slower-than-expected hiring in the state and the local sector could be contributing to higher unemployment.

"These things can all be part of good news — we're getting everything back in order and in balance and we can move forward — but…if we have further weakening in demand for workers, we start to see layoff rates move up, we're close enough to the danger zone you're moving into a recession," she added.

The jobless rate remains near historic-lows, but has inched steadily higher over the past year. Unemployment rose to 4.1% last month, the highest level recorded since 2021, according to Fed data.

Some forecasters have predicted job losses could rise in the coming months. Companies could continue to struggle financially amid high interest rates, which could push the unemployment rate to 5% by the end of the year, top economist David Rosenberg has predicted.

The outlook on recession though still remains mixed. According to New York Fed economists, the economy has a 56% chance of tipping into a downturn by June of next year.