Sahm Rule Recession Indicator

Overview

This pillar tracks the Sahm Rule, a simple yet powerful indicator for identifying the start of a recession in real-time. It uses shifts in the unemployment rate to provide a timely warning, often months before official declarations.

What It Does

The Sahm Rule indicator measures the 3-month moving average of the national unemployment rate against its lowest point over the previous 12 months. A recession is signaled when this moving average rises 0.50 percentage points or more above the low. This pillar automates this calculation using the latest economic data releases.

Why It Matters

Official recession announcements lag by many months, making them useless for timely predictions. The Sahm Rule has historically identified the start of every U.S. recession since 1960 with no false positives, providing a significant timing advantage in financial markets.

How It Works

First, we source the monthly U.S. national unemployment rate (U3) from official government releases. Next, we calculate a simple 3-month moving average of this rate. We then find the minimum unemployment rate recorded over the preceding 12 months and subtract it from the moving average. If this value meets or exceeds 0.50, the pillar signals a high probability of a recession.

Methodology

The core calculation is: Sahm Indicator = (3-Month Simple Moving Average of UNRATE) - (Minimum UNRATE over the last 12 months). A signal is triggered when the Sahm Indicator value is greater than or equal to 0.50. Data is updated monthly following the Bureau of Labor Statistics' employment situation report.

Edge & Advantage

This pillar provides a clear, data-driven recession signal much faster than official NBER announcements, enabling users to act on macroeconomic shifts before the market consensus forms.

Key Indicators

• Sahm Rule Value

  high

  The current calculated value of the indicator; a value >= 0.50 is the recession signal.

• 3-Month Avg. Unemployment

  medium

  The smoothed short-term trend in the national unemployment rate.

• 12-Month Unemployment Low

  medium

  The baseline against which the current unemployment trend is compared.

Data Sources

• St. Louis FRED

  Provides the pre-calculated Sahm Rule Recession Indicator series (SAHMREALTIME) and underlying unemployment data.

• U.S. Bureau of Labor Statistics (BLS)

  The primary source for the monthly U.S. unemployment rate (U3) data.

Example Questions This Pillar Answers

• → Will the NBER declare a US recession has started by Q4 2024?
• → Will the Sahm Rule indicator exceed 0.50 at any point in the next 6 months?
• → Will the Federal Reserve cut interest rates in the meeting following a Sahm Rule trigger?

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