The recent uptick in unemployment to 3.9% last month has sparked discussions about the potential implications for the economy, with some pointing to the so-called Sahm Rule as a possible predictor of looming recessions.
The Sahm Rule, conceptualized by former Federal Reserve economist and current Bloomberg columnist Claudia Sahm, suggests that a recession may be on the horizon when the three-month moving average of the unemployment rate increases by half a percentage point or more compared to its lowest point within the preceding 12 months.
Throughout the year, the lowest recorded unemployment rate stood at 3.4%. However, October saw a noticeable jump to 3.9%, making it the highest rate recorded so far in 2023. This followed two consecutive months of 3.8% unemployment in August and September.
Claudia Sahm, taking to X, the social media platform previously known as Twitter, expressed her concern about the recent surge in unemployment. She acknowledged that while the increase in joblessness is far from good news, it has not yet triggered the Sahm Rule nor is it at the precipice of doing so.
Sahm, who now leads her own consulting firm, has had mixed feelings about her brainchild, the Sahm Rule. In her own words, she has worried that it has evolved into “a monster.” In an interview back in August, she even stated that if it were ever going to break, now would be the time, and she would welcome such an outcome.
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The Sahm Rule has served as a reliable indicator of economic downturns in the past. Still, the recent data and Sahm’s response suggest that while concerns loom, the rule has not yet signaled an imminent recession. As economic conditions continue to evolve, analysts will keep a close eye on the unemployment rate, watching for signs that the Sahm Rule might confirm a downturn in the near future.
