The Sahm Rule: A Recession Indicator

What is the Sahm Rule?

The Sahm Rule is a recession indicator that looks at signals related to the onset of a recession. According to the rule, the early stages of a recession are characterized by a rise in the unemployment rate.

How the Sahm Rule Works

The Sahm Rule uses the three-month average of the monthly unemployment rate instead of taking the latest rate in isolation. This is because the monthly unemployment rate can be volatile, and the three-month average helps to smooth out the data.

The Sahm Rule is triggered when the three-month moving average of the unemployment rate rises by 0.5 percentage points or more over a period of three months.

The Sahm Rule and the Current Economic Situation

The current three-month moving average of the unemployment rate is 3.9%. This is close to the 4.0% threshold that would trigger the Sahm Rule.

If the three-month moving average of the unemployment rate continues to rise, it could signal the start of a recession.

Conclusion

The Sahm Rule is a valuable tool for economists and policymakers. It can help to provide early warning of a recession, which can give policymakers time to take action to mitigate the effects of the downturn.

The current economic situation is closely being monitored, and the Sahm Rule is one indicator that will be used to assess the risk of a recession.