One of the best-known "recession trigger" rules of thumb is Claudia Sahm's: historically when the 3-month moving average of the unemployment rate increases by 0.5 percentage points or more above its 12-month minimum, a recession has started. (If you don't follow Claudia on here, you should! She's one of the best macroeconomists in the US.) As the unemployment rate has crept up over the past year, we've gotten closer to "triggering" the Sahm Rule. But for those who follow this rule closely, it's worth remembering the 12-month window moves, and as a result the threshold for triggering it is going to drift upward as a reflection of increases in the unemployment rate over the past year. (In my opinion people attach a little too much talismanic meaning to the Rule - it's not like saying "Candyman" 3 times. But the phenomenon it tries to quantify, small/gradual increases in the unemployment rate converting to large/rapid ones without warning - is very real.)
Kyle Dane
3w
As with everything, though, there has to be a "mechanic" behind that conversion from short term small change into long term larger change, especially if you are proposing a policy prescription to offset that mechanic (Claudia is calling for rate reductions lately). I have heard no such mechanic proposed and as such I think that folks calling for various policy choices (lower gov't spending, higher gov't spending, austerity, etc ) are mostly just following a standard, historically not-very-successful playbook. Recessions are gonna happen, and to date we still have no predictors to help us avoid them, including the Sahm Rule. When crisis clearly hits, we know what to do. But we are not there yet.
As they printed lots of money with the trees cutting with stimulus now those trees are making concern for them in reading inflation and also on global warming, that is why FED is having there big space after rate hikes to 5.5% and with that we have dollar coming from 100 to 105 😅and they say that they are going for soft landing with stagflation😂. I think the ball is still with them and they will push bonds up in the sky with dollar to wrap up these stock market bubble 2020 to 2024 and the commodities bubble 2018-2024 and the inflation bubble 2020-2024 all in one go and there is one more war bubble2022-2024 ,we can add crypto also in that.
Peter Balint
2w
The economy will magicaly avoid the recession because nobody wants to see it, hear about it and talk about it. 🙈🙉🙊
Mark Smith
3w
Does this rule still apply when total employment is also rising? To put it another way, how do you distinguish this from job seekers coming back into the labor force?
Marc C.
1w
Not the first time I've seen the three and twelve months rate metrics driving signal. Neat!
thank you Guy, just started following her
Great post/graph. Thanks for sharing!
Beau King
3w
Very good visual!
Economist and Fed-watcher
1wThis illustrates why we should not take the “rule” literally. If the unemployment rate rises 0.4% every 12 months surely there is a high risk that the economy is sliding into a recession, assuming other data also points to weakness. On the other hand, with payrolls rising at a 170k pace a recession seems highly unlikely. Making judgements when the data send conflicting signals is what economists get paid for. There are three competing stories. First, payrolls are likely overstated due to overly generous birth-death assumptions. Second, employment in the household survey is understated due to underreporting of immigrant workers. Third there is a related surge in the labor force.