The Sahm Indicator Rule is an excellent measure for determining a recession. An official recession is based on measures by the National Bureau of Economic Research. However, the Sahm follows the beginning of recession seamlessly and shows their lagging impact of the ending of the official recession on the respective labor markets.
The Sahm Rule was developed to flag the onset of an economic recession more quickly than other indicators. The Sahm Rule signals the start of a recession when the three-month moving average of the national unemployment rate rises or stays consistently above a minimum of 0.50 percentage points or more relative to its low during the previous 12 months. Once the indicator exceeds the 0.85 mark it is almost safe to assume a recession is occurring or forthcoming.
Current unemployment data (May2024 US Jobs Report) shows the Sahm recession indicator was 0.4, a slight increase from the previous month. Nationally, the economy is not in a recession based on the Sahm Rule index but can be inching towards an economic downturn in the next couple of months.
Figure 1, Historical Sahm Rule Indicator of the US Unemployment Rate
The West census area, at 0,7 percentage point increase over a twelve-month period, is the only region where a recession may be present. The Northeast region (lower left panel) is at 0.4 percentage points which is slightly shy of the 0.5 recession threshold.
The next couple of months of unemployment will have a significant impact not only on the state of the overall economy but also on the financial markets and the elections in November.
Figure 2 Sahm Rule Indicator by Census Region
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