What is the Sahm Rule that predicts recession after a rise in unemployment?


The rise in unemployment to 3.9% last month means joblessness is close to triggering the so-called Sahm Rule, which has proven to be reliable predictor of recessions in the past.

The rule, hatched by former Federal Reserve economist and now Bloomberg columnist Claudia Sahm, posits the start of a recession when the three-month moving average of the unemployment rate rises by a half-percentage point or more relative to its low during the previous 12 months.

The low for joblessness so far this year was 3.4%. October’s rate was the highest so far this year, following two readings at 3.8% in August and September. 

In a posting on X, the social media platform formerly known as Twitter, Sahm said the rise in unemployment last month was not good news. 

But she added that the Sahm rule “did not trigger, nor is it right on the edge” of triggering despite last month’s increase in joblessness.

Sahm, who heads her own consulting firm, has said she worried her creation has become “a monster.”

“If it was ever going to break it would be now, and I would be so happy to see it break,” Sahm said in an interview in August.

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