Federal Policymakers Monitor “Sahm Rule” to Indicate Beginning of Recessions. Economists and federal officials regularly track the so-called “Sahm Rule” to help identify the beginning of a recession. The Sahm Rule—named for Claudia Sahm, the economist who discovered the rule—has accurately identified the start of each U.S. recession, in real-time, since 1970. (The Sahm Rule has signaled the start of each recession in the same month, or within a few months of, the National Bureau of Economic Research's formal recession dating committee, which dates the start of each recession after-the-fact.)
What Is the Sahm Rule? The Sahm Rule indicator signals the start of a recession when the three-month moving average of the unemployment rate rises by half a percent above the 12-month low of the unemployment rate. Historically, each time the unemployment rate has climbed quickly enough to trigger the Sahm rule, an economic downturn had either already begun or followed shortly thereafter.
Applying Sahm Rule to California Economy Also Accurately Identifies Prior Recessions. The Sahm Rule was developed to assess the start of national recessions. Applying the rule to state-level economies is subject to the caveat that the data are noisier than for the nation. Nevertheless, applying the same rule to California’s unemployment rate also accurately indicated (in real time) the prior six economic downturns in California.
Sahm Rule Recession Indicator Triggered On Earlier This Year. The state’s unemployment rate has moved upwards since last fall—climbing from 3.8 percent in August 2022 to 4.6 percent in August 2023. Given this increase, the state version of the Sahm Rule triggered first in March 2023 and continues to indicate recession conditions.