Weekend Aug 10, 2024
o explain why the consensus changed so fast, the economic chattering classes and press have latched onto the Sahm rule. That tool, created by economist Claudia Sahm, correlates an increase in unemployment with the onset of recessions. According to Ms. Sahm’s research, if the unemployment rate climbs by half a percentage point or more relative to its low during the previous 12 months, we will be in the early months of a recession.
This index has identified all recessions since 1953, but Ms. Sahm rightly emphasizes that the rule is only an empirical regularity, not a theory. Since January the unemployment rate has risen from 3.7% to 4.3%, fulfilling the Sahm criterion of a 0.5-point rise. The 3.7% low qualified, as it represents a low that has occurred within the past 12 months. This suggests the economy may already be in a recession.
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