Are More California Relief Checks Needed? Inflation Unemployment Levels Tick Key Recession Indicator Box in State

Key takeaways

• California’s unemployment rate is now at 4.5% and the three-month moving average has ticked key recession indicator
• Other states, including Oregon, Virginia and Washington, have also seen higher unemployment
• Shallow recession still possible as core CPI continues to accelerate

Californians won’t be rejoicing at the news that its state unemployment rate has officially crossed the threshold of a key recession marker. Perhaps further relief checks will be needed for its residents as a housing crisis, mass tech layoffs and high corporate tax rates bite households and businesses alike. Here’s the lowdown.

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What’s happening in California?

Even though unemployment has hit record lows in recent months, some regions are feeling the heat more than others. California’s unemployment rate has gone from 3.8% in August last year to 4.5% in May, with the three-month moving average falling into recession territory.

Economist Claudia Sahm was the first to coin the ‘Sahm rule’, where if the three-month moving average of the national unemployment rate goes up by half a percentage point or more, it’s a sign that a recession is on the horizon.

Is a recession on the way?

California’s situation is fairly unique. The state is a particular victim of the tech layoffs, with many Big Tech companies concentrated in the region, while a bigger portion of remote workers are based in California, which has a knock-on effect on city hospitality and leisure businesses.

So is it a regional quirk or an early warning sign? California isn’t the only one to see unemployment rise: Oregon, Virginia and Washington have also had the Sahm rule triggered. But national unemployment, while up in May’s data to 3.7% from 3.4% in April, still remains at record low levels.

The Fed is also doing better than its EU and U.K. counterparts in bringing down inflation. Headline inflation has fallen to 4% in May, down from 4.9% in April, though core CPI accelerated by 0.4% in May, suggesting there’s still a way to go in taming sticky inflation.

In short, it’s a coin toss — though other regions may suffer with higher unemployment thanks to the mass layoffs.

The bottom line

Mass layoffs, particularly in the tech sector, have had a regional impact on some states. Whether we look at California’s example as an early indicator of a national recession or a state-level quirk is yet to be determined, though it’s positive news that national unemployment remains low.

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