The highly anticipated jobs report data is scheduled for release on Friday, serving as another critical inflation indicator for investors to assess the likelihood of potential interest rate cuts by the Federal Reserve. Yahoo Finance's Josh Schafer joins the Live Show to discuss the SAHM rule and the impact of immigration on unemployment numbers across various states.

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Editor's note: This article was written by Angel Smith

Video Transcript

- The highlight of this first week or the second quarter is Friday's jobs report, of course, which will serve as another important signal to the Fed. And ahead of this week's data, we're already starting to see some states flash warning signs amid rising unemployment or as some call it, the Sahm rule. Yahoo Finance's Josh Schafer joins us now for more. Joshua.

JOSH SCHAFER: Yes. So we've had some economists applying the Sahm rule, which if we go through with the Sahm rule, is that is normally a national recession indicator. So we would be talking about the three-month rolling unemployment rate increasing more than 0.5% compared to the last 12 months for the Sahm rule to click. What's happening here is that it's happening in states. So it's happening in 20 states right now.

This is highlighted by UBS's Economics team. And what they said is largely, you can't look at this as a actual recession indicator, but what their takeaway was was maybe it's telling us that the economy isn't as strong as we think in certain areas of the country. What I found to be most interesting was I asked the founder of the rule, Claudia Sahm, about these findings and sort of what she found from them.

And she said, largely, she doesn't really think this is an effective practice because the 0.5% sort of trigger line in the Sahm rule, in the traditional Sahm rule that she highlighted, shouldn't be worked with that in the national level. So when you go and apply that to states, and you think about states that have seasonality-- workers come in during the summer-- and different factors, it just doesn't really work.

She tried to do it herself after this research was coming out and said it was sort of a tedious task. And she wasn't really sure how to attack it state by state. But what she did find, perhaps the most interesting thing of this whole little exercise here, was the increase in immigration that we're seeing at a national level. And that's something people have pointed to. We just showed the unemployment rate going up to 3.9%. A lot of the talk has been about immigration increasing.

And part of what you're seeing here is you can see immigration pulling up the overall US labor force. If they don't get work immediately, then your unemployment rate goes up. We're also seeing that at the state level. Claudia pointed out if we go back to that chart where we're showing states that have high unemployment rates, the three biggest states are California, New Jersey, and New York. Those are also three of the biggest states from an immigration standpoint.

So those states are bringing in a lot of workers. And in some, that could be part of why their unemployment rate is rising. And the kicker here would be if that's happening, and we're getting more workers, that probably means that supply would go up, and overall, the economy could actually grow more than expected if you spin that all the way through. That's something economists are thinking about, this increase in immigration, is it actually could be a good thing.

Not to take that big chart and just say, this is all a good thing. Of course, there are signs of weakness within that. But there is perhaps nuance here that I found rather interesting.

- And it will also be interesting to see if some of that immigration disperses to the states where there are more jobs. But I guess we'll just have to see.

JOSH SCHAFER: Yeah, that was-- right. That was the other piece of it. And Claudia said they normally find that immigrants would go to places where other immigrants are, which is why it's so heavily in certain states. But yes, if you were to see them then migrate to where there's more opportunity or imbalance in supply and demand, as we often talk about in the labor market, we would perhaps come into better balance.

- It might do that. Thanks so much, Josh. Appreciate it.