Sahm Recession Indicator Triggers, Signaling Economic Downturn

What is the Sahm Recession Indicator?

The Sahm Rule is an economic indicator developed by Claudia Sahm, a former Federal Reserve economist. It is designed to detect the onset of a recession by monitoring the unemployment rate and identifying sustained increases in long-term unemployment.

How Does the Sahm Rule Work?

The Sahm Rule compares the current unemployment rate with the lowest unemployment rate in the past 12 months. When the three-month moving average of the difference between the two rates exceeds 0.5%, it signals that a recession is likely to begin within the next six months.

Recent Triggering of the Sahm Rule

In June 2023, the Sahm Recession Indicator triggered for the first time since the COVID-19 pandemic. This suggests that the US economy is at risk of entering a recession in the coming months.

Implications for Wall Street and Policymakers

The triggering of the Sahm Rule has sent shockwaves through Wall Street and raised concerns among policymakers. It underscores the growing fears of an economic downturn and is likely to prompt a reassessment of monetary and fiscal policies.