What is the Sahm Rule?

The Sahm Rule is an economic indicator proposed by American economist Claudia Sahm to identify the beginning of a recession. The Sahm Rule determines whether a recession is likely to occur by comparing the current unemployment rate with the lowest unemployment rate in the past 12 months.

Specifically, if the current three-month moving average unemployment rate is 0.5 percentage points or more higher than the lowest unemployment rate in the past 12 months, the Sahm Rule will be triggered. This is generally seen as a relatively timely and reliable signal that the economy may have entered a recession. The advantage of the Sahm Rule is that it can quickly identify a recession without having to wait for the release of broader economic data.

The lowest unemployment rate in the past year was 3.7%, and this time it was 4.3%, a full 0.6% higher, so the Sahm Rule was triggered. Of course, the Sahm Rule is not 100% accurate, and it is only a judgment tool, but if the unemployment rate continues to rise, then the risk of a recession is bound to be high.

I have pinned my tweets on Twitter. Interested friends can take a look. It talks about the last drop during the recession.