The Sahm Rule

The unemployment-based recession indicator: how it works, its record, and its limits.

The Sahm rule signals the start of a recession when the three-month average of the unemployment rate rises 0.50 percentage points or more above its lowest point over the previous twelve months. Created by economist Claudia Sahm as a trigger for automatic fiscal stimulus, it has historically flagged every US recession since 1970 with few false alarms — usually within months of the recession's start.

Its power comes from a simple asymmetry in labor markets: unemployment tends to drift down slowly and rise fast. A half-point jump in the smoothed rate has historically meant the rise is feeding on itself. This page explains the mechanics, the record, and — importantly — the situations where the rule can mislead.

How the rule is calculated

Take the unemployment rate's three-month moving average. Subtract the minimum of that same average over the prior twelve months. When the difference reaches 0.50 percentage points, the rule triggers.

The three-month averaging filters out single-month noise in a survey-based statistic; the twelve-month lookback anchors the comparison to the recent cycle rather than a distant baseline. The live value of this calculation is charted on the Sahm rule page linked below.

The historical record

Applied retroactively, the rule triggered during every recession since 1970, typically two to four months after the recession's official start — far earlier than the NBER's dating committee, which often declares recessions a year later. False positives have been rare; the 1959 and 1969 borderline cases predate its design window.

That record is why the rule became a fixture of recession dashboards. It is worth remembering what it is for: Sahm designed it to trigger stimulus payments quickly, prioritizing few false alarms over the earliest possible warning.

Where the rule can mislead

The rule reads rising unemployment as collapsing labor demand. But the unemployment rate can also rise because more people enter the labor force to look for work — the denominator grows, and the rate ticks up without layoffs accelerating. Sahm herself flagged this ambiguity during 2024's immigration-driven labor-force surge, when the rule briefly triggered outside a recession.

It is also a coincident-to-lagging signal by design: by the time it fires, the recession has typically already begun. It answers 'has a recession likely started?' — not 'is one coming?'. Forward-looking indicators like the yield curve and jobless claims, linked below, address the second question.

Frequently Asked Questions

What is the Sahm rule threshold?

0.50 percentage points: the rule triggers when the unemployment rate's three-month average rises half a point or more above its lowest three-month average of the previous twelve months.

Has the Sahm rule ever been wrong?

Rarely, but yes. In 2024 it briefly triggered while the economy kept growing — unemployment rose partly because labor-force growth outpaced hiring, not because layoffs surged. Claudia Sahm noted this case herself: the rule assumes rising unemployment means weakening demand, which is usually but not always true.

Is the Sahm rule triggered right now?

The live reading is charted on the Sahm rule indicator page linked on this page, updated with each monthly employment report.

Does the Sahm rule predict recessions?

No — it detects them early rather than predicting them. It typically fires two to four months after a recession has already started, well before official dating. Leading indicators such as the yield curve attempt the harder job of signaling in advance.

Related charts

Sahm Rule Recession IndicatorUS Unemployment RateInitial Jobless Claims