The Sahm rule, explained

A simple test built from the unemployment rate that has flagged the start of every US recession since 1970, how it works, and where it can mislead.

The Sahm rule is a quick way to tell, from the unemployment rate alone, whether a recession has probably started. It was proposed in 2019 by economist Claudia Sahm, then at the Federal Reserve, as a trigger for sending support to households early in a downturn instead of waiting for the official verdict months later.

How it works

Take the unemployment rate for the last three months and average them. Then find the lowest three-month average of the previous twelve months. If today's average is half a percentage point or more above that low, the rule is triggered.

Averaging over three months smooths out the noise in any single jobs report. Comparing with the recent low captures the moment when unemployment stops drifting and starts to climb, which in the past has tended to snowball: people who lose their jobs spend less, which leads to more job losses.

The current reading is 0 percentage points for September 2026, and the unemployment rate itself is 4.2% for September 2026.

How well it has worked

Applied to the data as it was first published at the time, the rule has crossed the 0.5 line early in every US recession since 1970, usually within the first few months. That is why it is popular: it is simple, uses one widely watched number, and does not depend on a model.

Where it can mislead

• It is a recognition tool, not a forecast. By the time it triggers, a recession has typically already begun. It tells you the economy has turned, not that it is about to.
• Unemployment can rise for good reasons. In mid-2024 the rule crossed 0.5 without a recession following quickly. Part of the rise came from a fast-growing labour force, as new workers took time to find jobs, rather than from layoffs. Sahm herself pointed out that the rule may overstate the risk in situations like that.
• One rule is not enough. It works best alongside other signals, such as weekly jobless claims, which show whether layoffs are actually rising.

On this site

The Sahm rule is one of six rules in the site's recession watch. When it reaches 0.5 it counts as an alert, and it only clears once it falls back below 0.3, so that a single good month does not switch it off. You can see the full history, with past recessions shaded, on the Sahm rule chart, and how it fits with the rest of the jobs data on the jobs pillar.