The Sahm rule
The Sahm rule, proposed by economist Claudia Sahm in 2019, triggers when the three-month average unemployment rate rises 0.5 percentage points above its lowest value over the previous twelve months. It has correctly identified the start of every US recession since the 1970s, usually within months of the NBER peak.
Why it works
Unemployment rises in a self-reinforcing way once a recession begins: layoffs reduce income, which reduces demand, which produces more layoffs. The 0.5pp threshold is tuned to capture that transition while filtering out normal labor-market noise — small upticks mean little, but once momentum builds past half a point, a downturn is almost always underway.
What it is not
It is deliberately not a forecast — it timestamps onset rather than predicting it, which is why this monitor counts it in the nowcast block with zero forecast weight. Its pre-1970s record has a couple of timing misses (1959, 1969), and its clearest modern wrinkle came in August 2024, when the July data crossed the threshold on labor-force growth — more job seekers, not more layoffs — without a recession following.