Sahm Rule Recession Indicator
The Sahm rule fires when the three-month average unemployment rate rises half a percentage point above its low for the prior twelve months. It has identified every U.S. recession since 1970 with a short lag and, so far, no false positives.
History
What the rule measures
['Take the three-month moving average of the U.S. unemployment rate. Compare it with the lowest value that average reached in the previous twelve months. If the gap is 0.50 percentage points or more, the rule says a recession is underway.
', "It was designed by Claudia Sahm, a former Federal Reserve economist, as a real-time trigger for fiscal stimulus rather than as a market signal. Its value is that it uses one monthly series, needs no revision-prone inputs, and does not depend on anyone's judgement about what counts as a recession.
"]Why it works, and where it can fail
['Unemployment rises in a fairly characteristic way at the start of a downturn: slowly, then faster. A half-point rise from the twelve-month low has historically been enough to distinguish "the cycle has turned" from ordinary month-to-month noise.
', 'The failure mode is a labour market that cools without a full contraction. If participation rises sharply, the unemployment rate can climb while employment keeps growing — the rule fires and no recession follows. That has not happened decisively in the historical record, but the record is short, and it is the main reason to read the rule alongside payrolls and claims.
']Reading the current value
['A reading of 0.00 means the three-month average is at its twelve-month low — the labour market is as tight as it has been in a year. Anything below 0.50 is "not triggered", but the distance to the threshold is the interesting part: a reading of 0.40 says the rule is one bad payrolls report away from firing.
', 'Look at the shape rather than the level. The historical triggers cluster at the start of recessions with a lag of zero to four months, which is fast for an economic indicator and slow for a market one.
']How we calculate it
["We use SAHMREALTIME from FRED, which is the Federal Reserve's own real-time version of the rule — it uses the data available at the time rather than the final revised series, so it does not benefit from hindsight the way a backtest would.
", 'The threshold line on the chart sits at 0.50 percentage points. The percentile is computed against monthly observations since 1959.
']Distribution since 1959
Each row is the share of historical observations at or below that level. A reading in the 90th percentile is higher than nine tenths of the record.
Important
Not investment advice. This page is published for information and education only. It is not a recommendation, solicitation, or offer to buy or sell any security. Market data may be delayed, incomplete, or revised. Indicators describe the past; they do not forecast returns. Past performance does not guarantee future results. Do your own research or consult a licensed financial professional before acting on anything you read here.
Questions
Has the Sahm rule ever been wrong?
It has not produced a false positive in the U.S. record since 1959, but the record contains only about nine recessions. A rule with nine observations can look perfect and still fail the next time.
How fast does it signal?
Historically the trigger has come within zero to four months of the official recession start, usually after the recession has already begun. It confirms, it does not predict.
Why real-time rather than revised data?
Because a rule tested on revised data is not tradable. The real-time series uses the numbers that were actually published at the time, which is what you would have seen.
Why is the latest stretch of the chart locked?
The current reading and the full history are free. The most recent months are member-only, along with threshold alerts for when the rule fires.