Sahm Rule Recession Indicator
Monthly recession-risk signal based on labor-market deterioration (Sahm Rule)
The Sahm Rule is a simple, fast recession indicator: when the unemployment rate rises enough relative to its recent low, recession risk historically jumps. Traders like it because it is transparent, easy to explain, and ties directly to the labor-market deterioration that tends to occur early in downturns.
Historical Sahm Rule Chart
What the Sahm Rule Measures
What it is (Sahm Rule definition)
The Sahm Rule is built from the unemployment rate. Conceptually, it compares the current unemployment rate to its recent low and asks: has the labor market deteriorated enough to look recessionary?
How it’s calculated (simple formula)
The classic construction uses the 3‑month moving average of unemployment and subtracts the minimum of that moving average over the prior 12 months. The result is a "gap" measure that rises when unemployment lifts off its cycle low.
Signal level (why 0.5 matters)
A widely cited trigger is around 0.5. Think of it as a practical threshold: it’s high enough to filter normal month‑to‑month noise, but low enough to show up early in many downturns. In real trading, the direction and persistence often matter more than a single print.
Limitations (false positives and lag)
The Sahm Rule is intentionally simple. It can be late in fast shocks, and it can give "almost" signals during mini slowdowns or unusual post‑shock labor dynamics. Use it as a confirmation tool for recession odds rather than a precision timing model.
Market implications (rates, credit, risk)
Rising Sahm Rule readings typically align with risk‑off pricing: softer growth expectations, wider credit spreads, and greater odds of policy easing. Pair it with the yield curve, financial conditions, and delinquency/credit stress indicators to triangulate regime shifts.
Current Reading
Interpreting Sahm Rule
Macro context
This is a labor-market regime signal. It pairs well with credit (spreads/delinquencies), financial conditions, and real activity indicators to confirm whether a soft landing is holding.
Release Schedule
The Sahm Rule is updated monthly as unemployment data is released (typically early in the month).
- Frequency: Monthly
- Unit: Percent (rule value)
- Source family: FRED / labor market