The Sahm Rule: A Real-Time Quantitative Recession Trigger
Mathematical definition, 0.50% threshold mechanics, historical accuracy, and labor market feedback loop dynamics.
1. What Is the Sahm Rule?
Developed by Federal Reserve economist Claudia Sahm, the Sahm Rule is a quantitative, real-time macroeconomic indicator designed to identify the onset of a U.S. recession in its earliest stages, without waiting for the retrospective dating of the NBER.
2. Mathematical Definition & Formula
The Sahm Rule Recession Indicator signals the start of a recession when the three-month moving average of the national unemployment rate ($U3$) rises by 0.50 percentage points or more relative to its minimum value during the preceding 12 months:
3. Why the Sahm Rule Is Historically Flawless
Since 1970, every single time the Sahm Rule triggered (indicator ≥ 0.50%), the U.S. economy was either entering or already inside an official recession — with zero false positives.
The macroeconomic logic relies on the non-linear feedback loop of the labor market: once unemployment begins to tick upward, laid-off workers reduce aggregate spending, decreasing corporate revenues and triggering subsequent rounds of corporate layoffs.