The July jobs report fell short of expectations, with the US economy adding only 114,000 jobs compared to the forecasted 175,000. The unemployed rate also increased to 4.3%, which is the highest level in about three years.

Yahoo Finance anchor Madison Mills explains that the Sahm rule "says that if the three-month moving average of the unemployment rate rises by half a percentage point from the previous that signals the start of a recession." Yahoo Finance sat down with the creator of the Sahm rule, Claudia Sahm, chief economist at New Century Advisors and former Federal Reserve Board economist, to discuss the state of the economy.

Sahm notes that she doesn't think we are in a recession right now given the current macro-environment, but she believes "that the increases in the unemployment rate and the softening in the labor market is worrisome... and we could end up in a recession in say 3 months, 6 months," which Sahm "is very concerned about."

Sahm adds that "the Sahm rule is probably overplaying it right now, to some extent, just because of... a lot of shocks we're working through," such as the pandemic and labor force.

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This post was written by Mariela Rosales.