Attention Economy


Wednesday, November 15, 2023

Sahm Rule and Recession Forecasting


Claudia Sahm: Why My Recession Rule Could Go Wrong This Time
https://www.bloomberg.com/opinion/articles/2023-11-07/one-highly-accurate-recession-indicator-could-be-wrong-this-time
The highly accurate Sahm rule uses the unemployment rate to detect the start of an economic downturn. But like many indicators during the pandemic era, it’s possible it could “break.” 


My note from July 2023:
https://thehill.com/opinion/finance/4121540-traditional-recession-indicators-have-misfired-are-we-in-for-a-sneaky-recession/
The Sahm Rule, another widely-followed recession indicator, is based on the empirical regularity that a recession usually occurs when the three-month moving average of the unemployment rate rises half a point above its 12-month low. But in recent quarters, despite signs of economic softening, firms have tended to hoard labor, potentially distorting labor market signals.