Sahm Rule Recession Indicator

The chart shows the real-time Sahm rule indicator, monthly, over ten years, from FRED. The rule takes the 3-month average unemployment rate and subtracts the lowest 3-month average of the previous twelve months. A reading of 0.50 or more has marked the early months of past US recessions.

The rule uses one fact: once unemployment starts to rise, it usually keeps rising. Lost income cuts spending, which costs more jobs. The indicator can only move after unemployment leaves its low, so it confirms a recession near its start instead of predicting one. It is a pattern from past data, not a law.