I created the Sahm rule—a widely followed and highly accurate indicator of a recession—based on labor market conditions. Specifically, if the three-month average of the unemployment rate is ½ percentage point or more above its low over the prior twelve months, then the US is in the early months of a recession. The Sahm rule has triggered within, but never outside, every recession since the 1970s.
Expertise
I developed the Sahm rule as an automatic trigger for relief programs in recessions. It exemplifies my data-driven problem-solving skills. My rule is in the Bloomberg terminal, FRED, and Haver.
Pictured
The Sahm rule uses the three-month moving of the U.S. unemployment rate. If the latest value of that series 0.5 percentage points or more above its low over the prior twelve months, then the United States is in the early months of a recession. The chart shows the value of the Sahm rule from January 1970 to December 2023.
