America's recession indicators are more busted than ever

Flashback: In the past, trends in temporary employment were a big tell — whatever happened in this sector soon happened in the broader job market. Or at least, that was the case ahead of recessions in 1991, 2001 and 2008.

• Declines in temp employment "preceded those in the overall labor market by 6 to 12 months" in the recessions before 2020, the Bureau of Labor Statistics found. The intuition is straightforward: Companies cut back on temp employees to forestall layoffs of permanent workers.
• Temp employment peaked in March 2022; it has shed 515,000 jobs since then, a 16% drop. But total payroll employment has kept rising anyway.
• "The decline has been going on for way too long for me to say there's a direct linkage" to the rest of the economy, Ger Doyle, an executive at staffing agency Manpower, tells Axios.

The intrigue: There is "discussion about temporary employment being down, and 'is that a sign that things are falling apart?'" Chicago Fed president Austan Goolsbee told reporters earlier this month.

• Business leaders "have mostly convinced me something fundamental is changed in the labor market about the role of temporary employment," Goolsbee added.
• Temp employment used to be a good indicator of where you are in the business cycle, Goolsbee said, but pandemic-era labor shortages "scarred employers so much that they're like, 'We don't rely on temps anymore,'" Goolsbee said.

An inverted yield curve also has a track record of predicting recessions, going back more than a half-century.

• The curve has been inverted — meaning the cost for the government to borrow money in the short term has been higher than in the long term — for two years, the longest period on record. And still no recession.

Another common rule of thumb: Two consecutive quarters of contracting GDP equals a recession.

• U.S. economic growth was in negative territory in the first and second quarters of 2022, yet the broader economy — as measured by indicators like employment, personal income and consumption expenditures — never cracked.
• Two years later, conditions haven't come close to the point that would trip the National Bureau of Economic Research's business cycle dating committee's definition of recession as "a significant decline in economic activity that is spread across the economy and that lasts more than a few months."

What to watch: The labor market is on the cusp of triggering an indicator with a near-perfect track record of detecting a recession in real time — but even the inventor of that rule is skeptical of its usefulness this time around.

State of play: According to the Sahm Rule, the economy is likely in a recession when there is a 0.5 percentage point increase in the three-month average unemployment rate over the prior 12 months. As of June, that difference stood at 0.43 percentage point.

• There are two reasons why the unemployment rate can move higher: an increase in joblessness — or more workers entering the labor force, as has been the case in recent months, without immediately finding a job.
• But the Sahm Rule doesn't distinguish between those two stories — so a trigger might be a quirk related to the pandemic recovery, Claudia Sahm, the former Fed economist who created the rule, tells Axios.
• "What the pandemic kicked off in terms of a business cycle is very unusual," Sahm adds, pointing to the unprecedented supply disruption.

The bottom line: "What's worked relatively well in the past to signal a recession — it should be no surprise that now they are missing something," Sahm says.

• "The yield curve fell victim to this. The back-to-back quarters of GDP declines fell victim to this. I expect in the coming months the Sahm Rule will fall victim to this," she says.