Today's reading › Liquidity & labor

Liquidity and labor-market stress: claims, NFCI, net liquidity, SOFR and the Sahm Rule

Updated 2026-09-27

Labor-market cracks and cash shortages in the financial system tend to show up in weekly data well before they reach GDP. This monitor follows five of the fastest-moving signals: jobless claims, the Sahm Rule, financial conditions, net liquidity and overnight funding stress.

Initial jobless claims

New unemployment-insurance claims (ICSA) are published every week, which makes them one of the earliest labor-market signals there is. The monitor tracks the 4-week average's distance above its own low over the past year: claims climbing well off their cycle low tends to come before broader job losses. Continuing claims, people still collecting benefits, show how hard it is to find a new job.

Warning levels: 4-week average vs. its trailing-year low: yellow ≥ +6%, orange ≥ +12.5%, red ≥ +20%.

What is the Sahm Rule?

The Sahm Rule, devised by economist Claudia Sahm, compares the 3-month average unemployment rate with its low over the prior 12 months. A rise of 0.5 percentage points or more has marked the early months of every US recession since 1970. The monitor uses the real-time version, built from unemployment rates as first published, so past readings show what the rule actually said at the time.

Warning levels: Real-time Sahm Rule: yellow ≥ +0.15 pp, orange ≥ +0.3 pp, red ≥ +0.5 pp (the Sahm trigger).

Chicago Fed National Financial Conditions Index (NFCI)

A weekly composite of money-market, debt and equity-market measures, scaled so that 0 is average and positive readings mean tighter-than-average conditions: credit harder to get, risk more expensive.

Warning levels: 0 = average conditions; positive = tighter: yellow ≥ 0, orange ≥ +0.2, red ≥ +0.5.

What is Fed net liquidity?

Net liquidity is the Federal Reserve's balance sheet minus the Treasury's cash account at the Fed (the TGA) minus the reverse repo facility (WALCL − WTREGEN − RRPONTSYD). It approximates the cash actually available in the banking system. Quantitative tightening, a Treasury rebuilding its cash pile, or money flowing into reverse repo all drain it.

Warning levels: Change over 13 weeks: yellow ≤ −3%, orange ≤ −8%, red ≤ −12%.

SOFR funding stress

SOFR, the overnight repo rate, normally sits at or below the rate the Fed pays banks on their reserves. When cash is scarce it jumps above it: +315 basis points on 17 September 2019 and +44 bp in March 2020. The monitor uses a 5-day average because single-day month-end blips are routine. SOFR data starts in April 2018.

Warning levels: 5-day average of SOFR minus the rate on reserves: yellow ≥ +5 bp, orange ≥ +10 bp, red ≥ +20 bp.

How these feed the daily answers

NFCI and SOFR funding count toward current stress; all five count toward momentum; jobless claims and NFCI, with the yield curve, make up pressure building. See the methodology.