New York / Washington: The U.S. economy may not be flashing red yet, but warning lights are beginning to glow amber. According to Moody’s Analytics, a steady rise in unemployment is nudging the world’s largest economy closer to one of the most closely watched recession indicators, raising concerns that growth could stall more sharply in the year ahead.
Data released by the Bureau of Labor Statistics (BLS) shows that the U.S. unemployment rate climbed to 4.6% in November, continuing a gradual upward drift that economists have been tracking throughout the year. Job creation, meanwhile, remains muted. The economy added just 64,000 new jobs last month, a figure that represents little net improvement since April and is well below the levels typically associated with robust expansion.
While an unemployment rate of 4.6% is not historically alarming—economists often view anything near 4% as consistent with a healthy labor market—it is the direction and persistence of the increase that is causing unease. In November last year, unemployment stood at 4.2%, underscoring how steadily labor conditions have softened.
The Sahm Rule Comes Into Focus
Much of the current anxiety centers on the Sahm Rule, a recession signal developed by former Federal Reserve economist Claudia Sahm. The rule is triggered when the three-month moving average of unemployment rises by 0.5 percentage points or more above its lowest level from the prior 12 months.
Speaking on Moody’s Inside Economics podcast, chief economist Mark Zandi and senior director of economic research Dante DeAntonio noted that the U.S. is edging dangerously close to that threshold. As of November, the Sahm Rule indicator stood at 0.43, just shy of the trigger point.
“We didn’t quite trigger it this month, but we’re sort of on the precipice,” DeAntonio said. “If it stays at 4.6% next month, we’ll trigger the Sahm Rule again. It’ll be exactly at the threshold.”
Historically, the Sahm Rule has proven to be a reliable early-warning system for recessions. However, it is not infallible. The U.S. avoided a downturn last year despite briefly flirting with the indicator, thanks in part to aggressive interest-rate cuts by the Federal Reserve that helped engineer what policymakers described as a “soft landing.”
Recession Odds Rise to 40%
Looking ahead, economists at Moody’s are less sanguine. Cris deRitis, the firm’s deputy chief economist, now places the probability of a U.S. recession next year at around 40%, higher than the 30%–35% range typically cited by Wall Street.
“The trends are not our friends here,” deRitis said, pointing to weakening job growth, constrained labor supply, and declining employer demand. Zandi echoed those concerns, highlighting structural factors that are quietly eroding labor-market resilience.
“One reason job growth is weaker is less labor supply, because of immigration policy,” Zandi explained. “That gets you to the 50,000 to 75,000 break-even monthly job number. That by itself is already pretty weak.”
The break-even number refers to the minimum number of jobs the economy must add each month to keep the unemployment rate from rising. Falling below that threshold, economists warn, can quickly accelerate labor-market deterioration.
AI and Weak Demand Add Pressure
Beyond immigration and policy uncertainty, Moody’s economists also see artificial intelligence as an emerging factor reshaping employment dynamics. While the impact so far has been “modest,” Zandi cautioned that AI-driven productivity gains could eventually translate into outright job losses if adoption accelerates faster than new roles are created.
“Stock investors are buying AI stocks thinking adoption will raise productivity and profitability,” he said. “If they’re half right—or even a quarter right—then we’re in a world of outright job decline, all else being equal.”
At the same time, demand from employers is weakening. Tariffs, deglobalization efforts, and shifting trade policies are dampening business confidence, while slower consumer spending growth is limiting hiring appetite.
A Fragile Balance
For now, the U.S. economy remains on a fragile tightrope—neither in recession nor comfortably insulated from one. Whether the coming months bring stabilization or further slippage may depend on policy choices, global economic conditions, and how quickly labor-market slack translates into reduced spending.
As DeAntonio summed it up, “We’re not there yet—but we’re close enough that policymakers and markets should be paying attention.”
