Sahm Rule

Macro & the Fed

Named after economist Claudia Sahm, the Sahm rule is a recession indicator.

It triggers when the three-month average of the unemployment rate rises 0.5 percentage points or more above its lowest three-month average of the previous 12 months. Historically it has flagged the start of recessions at an early stage. It is an observed regularity, not a law of economics, and it can mislead when, for example, labor supply changes quickly.

Example

If the three-month average unemployment rate hit a low of 3.6% during the past year and now stands at 4.1%, the gap is 0.5 points and the rule has triggered.

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