Sahm Rule Indicator

Real-time momentum indicator for labor market trends.

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Overview

A highly accurate recession indicator that tracks changes in the unemployment rate momentum rather than absolute levels, offering earlier signals than traditional metrics.

How It Works

Triggers when the 3-month moving average of the unemployment rate rises 0.50% above its lowest point in the previous 12 months.

How to Interpret

Bullish Signal

Values near 0 indicate a robust, tightening labor market.

Neutral Signal

Values between 0.20-0.40 suggest cooling but stable conditions.

Bearish Signal

Values >= 0.50 signal a negative inflection in the economic cycle.

Historical Context

Has identified every modern recession with high accuracy and minimal lag, including the rapid onset of the 2020 contraction.

Data Information

Data Source
Bureau of Labor Statistics via FRED
Update Frequency
Monthly

Limitations

  • Relies on monthly data releases
  • Does not forecast the depth or duration of a downturn

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