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→Historical Accuracy: Table with historical performance of the Sahm rule |
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The Sahm rule is a robust tool that has been very accurate in identifying a downturn in the [[business cycle]] and almost always doesn't trigger outside of a recession. The simplicity of the calculation contributes to its reliability. The Sahm rule signals the early stages (onset) of a recession and generated only two false positive recession alerts since the year 1959 (there have been 11 recessions since 1950); in both instances — in 1959 and 1969 — it was just a little untimely, with the recession warning appearing a few months before a slide in the U.S. economy began.<ref>{{Cite news|date=2024-08-02|title=U.S. employers likely added 175,000 jobs in July as labor market cools gradually|url=https://apnews.com/article/economy-jobs-unemployment-federal-reserve-inflation-22095766804d9c1532b4fcc29565be49|access-date=2024-08-02|website=AP - The Associated Press, Washington|language=en}}</ref> In the case of the false positive warning related to the year 1959 it was followed by an actual recession six months later. The Sahm rule typically signals a recession before [[GDP]] data makes it clear.<ref>{{Cite web|date=2024-01-01|title=Sahm Rule Recession Indicator|url=https://www.currentmarketvaluation.com/models/sahm-rule.php|website=Current Market Valuation (CMV) by Gramalam, LLC|language=en-US}}</ref>
The Sahm rule is designed to indicate that the U.S. economy is in the early months of a recession, rather than forecasting future recessions.<ref>{{Cite web|last=Sahm|first=Claudia|date=2024-03-29|title=No, you didn't invent the Sahm rule and that's ok, we need more tools!|url=https://stayathomemacro.substack.com/p/no-you-didnt-invent-the-sahm-rule|website=Substack|language=en-US}}</ref> While the historical performance and timeliness of the Sahm rule has been very accurate, the reliability of the Sahm rule in today's economy has been questioned due to several distortions and there is reason to believe that the economy might act differently this time around due to unique unusual conditions{{cn}}. This suggests that caution should be exercised when interpreting the Sahm rule in the current unprecedented economic situation. Like all economic indicators, it should be considered alongside other economic data and indicators. However, the Sahm Rule remains a valuable tool for economists and policymakers for early detection of economic downturns.
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