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What is the Sahm Rule?
The Sahm Rule is a real-time recession indicator developed by economist Claudia Sahm. It triggers when the 3-month moving average of the US unemployment rate rises 0.5 percentage points or more above its low of the prior 12 months. Historically, the Sahm Rule has triggered at the start of every US recession since 1970, with no false positives - though its 2024 trigger came during a period of strong labor supply growth, raising questions about its current sensitivity.
- Trigger condition
- 3M-avg U-rate ≥ 0.5pp above prior 12M low.
- Historical accuracy
- Triggered at every recession since 1970.
- False positive risk
- 2024 trigger occurred without recession (yet).
- Speed
- Faster than NBER recession dating by months.
The calculation
- Take the 3-month moving average of the seasonally-adjusted US unemployment rate.
- Find the lowest 3M average over the prior 12 months.
- If current 3M average is 0.5 percentage points or more above that low, the Sahm Rule has triggered.
Why it works
When unemployment rises, it tends to rise non-linearly - small increases accelerate. The 0.5pp threshold has historically captured the early dynamics of every US recession since the 1970s without false positives.
The 2024 caveat
The Sahm Rule triggered in mid-2024, but Claudia Sahm herself has noted that strong immigration-driven labor-supply growth may be inflating the U-rate without the corresponding demand weakness that historically accompanied past triggers. This is the first credible "this time is different" critique.
What to read alongside
- 10Y-2Y spread
- HY OAS
- ISM new orders
- Initial jobless claims (4-week MA)