What’s the Sahm Rule? Is It Warning of a Recession? Does Sahm Think So?

For more than two years, the US Federal Reserve has been pushing interest rates up to slow inflation while hoping they don’t tip the economy into a recession. It’s a high-wire act that would be easier if there were a reliable gauge of where the recession risk stands at any particular moment. Anxieties prompted by a weak July jobs report were heightened by the fact that the data triggered what’s known as the Sahm rule, devised by and named after economist Claudia Sahm. But Sahm is one of a number of economists who argue that this time might be different — that the uptick in unemployment may have more to do with the aftermath of the pandemic.

The Sahm rule states that when the three-month moving average of the unemployment rate (that is, an average that combines the rate of the three most recent months) rises by half a percentage point or more from its lowest level over the past 12 months, the US economy is in the beginning of a recession.