Sahm Rule Recession Indicator

- May 10, 2025
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The Sahm Rule Recession Indicator signals the start of a recession when the three-month moving average of the unemployment rate rises by 0.5 percentage points or more relative to its minimum during the previous 12 months.

Unemployment Rate Data Input

Enter Monthly Unemployment Rate Data (Last 15 Months)
Month Year Unemployment Rate (%)
Analysis Options
percentage points
months
months

About the Sahm Rule

The Sahm Rule, developed by economist Claudia Sahm, provides a reliable real-time recession indicator based on changes in the unemployment rate. It triggers when the three-month average unemployment rate rises 0.5 percentage points or more above its low during the previous 12 months.

How It Works

The Sahm Rule compares current unemployment conditions to recent lows:

  1. Find the lowest 3-month average unemployment rate over the past 12 months
  2. Calculate the current 3-month average unemployment rate
  3. Measure the difference between these two values
  4. If the difference exceeds 0.5 percentage points, a recession signal is triggered
Historical Performance

The Sahm Rule has successfully signalled the onset of recessions since the 1970s:

  • It provides early warning signals at the start of recessions
  • It minimises false positives compared to other indicators
  • It uses readily available unemployment data that is rarely revised substantially
Applications

The Sahm Rule has several practical applications:

  • Economic Policy: Helps policymakers identify recessions quickly to implement countercyclical measures
  • Investment Strategy: Provides signals for defensive portfolio adjustments
  • Business Planning: Offers early warning for businesses to prepare for economic downturns
  • Research: Serves as a benchmark for comparing other recession indicators

Understanding the Sahm Rule Recession Indicator

The Sahm Rule Recession Indicator is a helpful tool for identifying the beginning of a recession. Developed by economist Claudia Sahm, it focuses on changes in the unemployment rate. This indicator signals a recession when the three-month moving average of unemployment rises by 0.5 percentage points or more compared to its lowest point in the past year. By using this calculator, individuals can gain early insights into economic trends, helping them make informed decisions.

How to Use the Calculator

The Sahm Rule Recession Indicator calculator makes it easy to input unemployment data. Users can choose between two input methods: entering the data manually or uploading a CSV file. You can enter the unemployment rates for the last 15 months or provide a CSV with the relevant data. This flexibility allows users to work with the method that suits them best, making analysis straightforward.

Setting Up Your Data

To get accurate results, it’s crucial to enter your data correctly. If you opt for manual entry, you’ll fill out a table with months, years, and unemployment rates. For the CSV upload method, the file must have clear columns for the date and the unemployment rate. Make sure the data covers the past 15 months for optimal analysis. This ensures that the calculator functions correctly and provides you with meaningful insights.

Analysis Customisation Options

The calculator offers various settings to fine-tune your analysis. You can adjust the threshold value, lookback period, and moving average period for your calculations. Here’s a quick look at these options:

  • Threshold Value: Set this to determine how much the unemployment rate should rise to signal a recession.
  • Lookback Period: Choose how many months you want the calculator to consider in the analysis.
  • Moving Average Period: This sets how smooth the unemployment data will be over time.

Interpreting the Results

Once you’ve entered your data and adjusted the settings, the calculator will provide results. Users will see the current indicator value, which shows how far the unemployment rate has moved. You’ll also get a recession signal that indicates whether the threshold has been crossed. This information helps users understand the current economic climate and whether a recession is likely.

Visualising the Data

Visualisation helps bring the data to life. The Sahm Rule Recession Indicator calculator provides a chart that displays the unemployment rate trends over time. Users can see how the unemployment rate has changed and if it approaches the threshold for a recession. This visual representation makes it easier to grasp complex data and spot important trends quickly.

The Importance of the Sahm Rule

The Sahm Rule Recession Indicator has proven effective for predicting economic downturns since its development. It is particularly valued for its reliability and early signals of recessions. Policymakers, investors, and businesses can all benefit from using this indicator to prepare for potential economic challenges. By providing timely information, it helps users make strategic decisions in uncertain times.

Practical Applications of the Calculator

This calculator is not just a theoretical tool. It has real-world applications that can assist in various fields:

  • Economic Policy: Governments can act quickly to implement measures when a recession is predicted.
  • Investment Strategies: Investors can adjust their portfolios based on recession signals.
  • Business Planning: Companies can prepare for downturns by anticipating changes in the economy.