The US labor market has shown signs of stability, with labor market declines not as widespread as previously thought, according to a new analysis of state-level unemployment claims. The Labor Market Stress Indicator (LMSI) measures the number of states experiencing accelerating unemployment, which can serve as an early warning system for recession.
A rapid buildup of stress in state labor markets often signals the start of a recession. However, recent data suggests that the US economy is not yet in a recession. Instead, labor market conditions remain relatively stable, with only one state – Hawaii – exhibiting accelerating unemployment.
The LMSI has been found to be a valuable complement to national recession indicators, providing insights into geographic variation in labor market weakness. The indicator’s transparent methodology makes it easy to interpret and provides valuable information on the distribution of economic stress.
According to recent data, nearly 70% of the US labor force resided in a state with accelerating unemployment in July 2024, but this share quickly fell within one month. This compares to previous recessions, where the LMSI and share of the labor force in distress remained elevated for months.
The analysis also found that states not closely connected to national recessions, such as Alaska and Hawaii, exhibit unique characteristics. These states rely heavily on industries like natural resource extraction, which are less likely to be tied to the national business cycle.
In conclusion, the LMSI provides a valuable tool for policymakers and economists to monitor economic conditions. With its flexibility, clarity, and ease of interpretation, it can help distinguish between genuine recession signals and temporary or localized labor market disruptions.
Source: https://www.frbsf.org/research-and-insights/publications/economic-letter/2025/08