Atlas Macro

Economy

Sahm Rule

A recession indicator created by economist Claudia Sahm: a recession has usually begun when the three-month average unemployment rate rises 0.5 percentage points or more above its lowest level of the previous 12 months.

Key points

  • Identified every US recession since 1970 in historical data.
  • Designed to recognise a recession early, not to forecast one far ahead.
  • Can give false signals when unemployment rises for other reasons, such as more people joining the labour force.

Example

If the three-month average unemployment rate rose from a low of 3.6% to 4.1%, the Sahm rule would be triggered.

In history

The rule triggered in August 2024 without a recession following. Sahm herself noted that strong growth in the labour force, rather than layoffs, was pushing unemployment up.

Related terms