Decoding the Sahm Rule: Wall Street's Recession Indicator Explained

The Sahm rule, an indicator designed to predict recessions, is now further from triggering after the US unemployment rate dropped to 3.7% in November. The rule compares the three-month average of the unemployment rate with the lowest average from the past year, and if the difference is 0.5 percentage point or greater, it triggers a recession warning. While the rule has historically been accurate, its creator, Claudia Sahm, believes it may not trigger this cycle due to workers returning to the workforce and a rebalancing of supply and demand dynamics in the labor market.