Sahm rule: Difference between revisions

In macroeconomics, the '''Sahm Rulerule''', or '''Sahm Rulerule Recessionrecession Indicatorindicator''', is a [[heuristic]] measure by the United States' [[Federal Reserve]] for determining when an economy has entered a [[recession]].<ref>{{Cite news |date=2019-10-04 |title='Sahm Rule' enters Fed lexicon as fast, real-time recession flag |language=en |work=Reuters |url=https://www.reuters.com/article/us-usa-fed-sahm-idUSKBN1WJ12J |access-date=2023-01-12}}</ref> It is useful in real-time evaluation of the [[business cycle]] and relies on monthly unemployment data from the [[Bureau of Labor Statistics]] (BLS). It is named after economist [[Claudia Sahm]], formerly of the Federal Reserve and [[Council of Economic Advisers|Council of Economic Advisors]].

The Sahm Rulerule originates from a chapter in the [[Brookings Institution]]'s report on the use of fiscal policy to stabilize the economy during recessions.<ref>{{Cite web|last=Shambaugh|first=Heather Boushey, Ryan Nunn, and Jay|date=2019-05-16|title=Recession ready: Fiscal policies to stabilize the American economy|url=https://www.brookings.edu/multi-chapter-report/recession-ready-fiscal-policies-to-stabilize-the-american-economy/|access-date=2020-12-20|website=Brookings|language=en-US}}</ref> The chapter, written by Sahm, proposes fiscal policy to automatically send stabilizing payments to citizens to boost economic well-being. Instead of relying on human intuition to determine when such payments should be sent, Sahm outlines a condition to trigger the payments.<ref name=":1">{{Cite web|last=Sahm|first=Claudia|date=2019-05-16|title=Direct stimulus payments to individuals|url=https://www.brookings.edu/research/direct-stimulus-payments-to-individuals/|access-date=2020-12-20|website=Brookings|language=en-US}}</ref> The trigger suggested indicates an economy beginning a recession and is now known as the ''Sahm Rulerule''.

The Sahm Rulerule was published by The [[Federal Reserve Bank of St. Louis|St. Louis Federal Reserve]] Bankbank's [[Federal Reserve Economic Data]] (FRED) system in October 2019.<ref>{{Cite web|date=2019-10-16|title=FRED Adds Sahm Rule Recession Indicators {{!}} St. Louis Fed|url=https://research.stlouisfed.org/publications/research-news/fred-adds-sahm-rule-recession-indicators|archive-url=https://web.archive.org/web/20191016192630/https://research.stlouisfed.org/publications/research-news/fred-adds-sahm-rule-recession-indicators|url-status=dead|archive-date=2019-10-16|access-date=2020-12-20}}</ref><ref>{{Cite web|title=FRED Adds Sahm Rule Recession Indicators {{!}} St. Louis Fed Economic Research|date=2 October 2019 |url=https://news.research.stlouisfed.org/2019/10/fred-adds-sahm-rule-recession-indicators/|access-date=2020-12-21|language=en-US}}</ref> It is retroactively calculated to evaluate performance from past recessions. The recession rule is defined as:

{{blockquote|Sahm Recession Indicator signals the start of a recession when the three-month [[moving average]] of the national unemployment rate (U3) rises by 0.50 percentage points or more relative to its low during the previous 12 months.<ref>Sahm, Claudia, Real-time Sahm Rule Recession Indicator [SAHMREALTIME], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/SAHMREALTIME.December 19, 2020.</ref>}}

The Sahm Rulerule has received recognition by popular economics news sources.<ref>{{Cite news|date=2019-06-11|title=How to spot a recession|newspaper=The Economist|url=https://www.economist.com/graphic-detail/2019/06/11/how-to-spot-a-recession|access-date=2020-12-21|issn=0013-0613}}</ref><ref name=":0" /> Its simplicity and low rate of false positives are attractive features.