What it is
The Sahm Rule, named after economist Claudia Sahm, is an informal but widely watched signal for economic recession. It is derived from the monthly unemployment rate data and specifically looks for a sustained increase that historically correlates with the onset of economic downturns. The rule is calculated by comparing the current three-month average of the national unemployment rate to its lowest point over the previous 12 months.
When the three-month average of the unemployment rate crosses the 0.5 percentage point threshold above its 12-month low, it signals that the economy is likely in a recession. This rule has accurately identified every U.S. recession since 1970, with no false positives. Policy makers and investors monitor it as a real-time indicator that can inform decisions on monetary policy or investment strategies.
Why it matters
This rule provides a timely, data-driven signal of an impending recession, helping retail investors understand economic risks and potential market shifts. It's a key indicator of a hard-landing.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice