What is the Sahm Rule that predicts recession after a rise in unemployment?
Unemployment’s rise to 3.9% last month means unemployment is close to triggering the so-called Sahm rule, which has proven to be a reliable indicator of recessions in the past.
The rule, developed by Claudia Sahm, a former Federal Reserve economist and now a Bloomberg columnist, posits the start of a recession when the three-month moving average of the unemployment rate increases by half a percentage point or more compared to its lowest level of the previous 12 years. month.
The lowest unemployment rate so far this year was 3.4%. The October rate was the highest so far this year, following two readings of 3.8% in August and September.
In a post on X, the social media platform formerly known as TwitterSahm said last month’s rise in unemployment was not good news.
But she added that the Sahm rule “has not triggered, nor is it about to” trigger despite the increase in unemployment last month.
Sahm, who runs her own consultancy, said she feared her creation had 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 August interview.
