Sahm Rule vs Unemployment Rate
The Sahm Rule, developed by economist Claudia Sahm, triggers a recession signal when the 3-month moving average unemployment rate rises 0.5 percentage points or more above its trailing 12-month minimum. Every US recession since 1970 has coincided with or been preceded by a Sahm Rule trigger.
Also known as: Sahm Rule Recession Indicator (Sahm rule, recession indicator, Sahm) · Unemployment Rate (U3) (unemployment, U3, jobless rate)
Why This Comparison Matters
The Sahm Rule, developed by economist Claudia Sahm, triggers a recession signal when the 3-month moving average unemployment rate rises 0.5 percentage points or more above its trailing 12-month minimum. Every US recession since 1970 has coincided with or been preceded by a Sahm Rule trigger. The rule triggered in July 2024 and has remained in signal territory through April 2026 despite no formal recession, making it a possible false positive. As of March 2026, unemployment at 4.3 percent versus a trailing 12-month minimum of approximately 3.6 percent gives a 0.7 percentage point rise, above the 0.5 threshold.
What the Sahm Rule Actually Measures
The Sahm Rule was introduced by economist Claudia Sahm in 2019 while at the Federal Reserve. It is defined as: the 3-month moving average of the national unemployment rate minus the minimum of the 3-month moving average unemployment rate over the prior 12 months. When this difference reaches 0.5 percentage points or higher, the indicator signals the early months of a recession.
The mechanism: recessions are characterized not by high absolute unemployment but by rising unemployment from cycle lows. The Sahm Rule captures this acceleration. A 0.5 percentage point rise in unemployment is a meaningful change in labor market dynamics that has historically coincided with confirmed recessions. The 3-month averaging smooths out month-to-month noise, and the 12-month minimum denominator provides a stable baseline that resets through each cycle.
Why Sahm Is Better Than the Raw Unemployment Rate
The raw unemployment rate is a poor recession indicator because recessions begin when unemployment is still near cycle lows. By the time unemployment is high (say 6-8 percent), the recession is usually well underway and often ending. Using absolute unemployment as a recession trigger would systematically miss the entry phase.
The Sahm Rule catches inflection points earlier. When unemployment rises from a 3.6 percent cycle low to 4.3 percent, the absolute level is still historically low, but the change is significant. Claudia Sahm designed the rule to be a real-time trigger that policymakers could use to identify the onset of recessions before the NBER's formal designation (which typically lags by 8-12 months). The practical intent was to enable faster fiscal response (automatic stabilizers, stimulus checks) at the onset of downturns.
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Frequently Asked Questions
What is the Sahm Rule?+
The Sahm Rule is a recession indicator developed by economist Claudia Sahm in 2019. It triggers a recession signal when the 3-month moving average of the US unemployment rate rises 0.5 percentage points or more above its trailing 12-month minimum. The Rule has identified every US recession since 1970 with one possible false positive currently in question (triggered July 2024, no recession as of April 2026). It was designed as a real-time recession trigger that would allow faster fiscal response than waiting for the NBER's formal recession designation.
Has the Sahm Rule been triggered currently?+
Yes. The Sahm Rule triggered in July 2024 when the 3-month moving average unemployment rate (4.1 percent) exceeded the trailing 12-month minimum (3.5 percent) by 0.6 percentage points. As of March 2026, the indicator remains above the 0.5 percentage point threshold. However, no formal recession has materialized. GDP has grown 2.5-3.0 percent annualized in recent quarters, employment has continued growing, and the S&P 500 has rallied 31 percent year-over-year. This is the longest sustained Sahm trigger without recession in the Rule's history.
Why might the current Sahm trigger be a false positive?+
Claudia Sahm herself has acknowledged the 2024 trigger may be a false positive. The Rule triggers on rising unemployment but cannot distinguish between rising unemployment from job destruction (traditional recession) versus rising unemployment from labor supply expansion (immigration, re-entry from COVID labor force exits). Through 2022-2024, labor force participation rose from 61.2 to 62.7 percent, adding 3-4 million workers, many of whom were newly entering the labor market. Absorbing this labor supply shock required a mechanical rise in unemployment even without any actual job losses. The Rule was triggered by denominator expansion, not numerator deterioration.
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