The United States is close to breaching the threshold for the Federal Reserve's "Sahm Rule" according to data from the June jobs report.
The Data: The Sahm Rule, named for economist Claudia Sahm, is a heuristic measure used by the Federal Reserve to determine whether the U.S. economy is in a recession. The rule has correctly predicted every recession since 1950 with only one false positive in 1959.
The Sahm Recession Indicator signals the start of a recession when the three-month moving average of the unemployment rate rises by 0.5% or more relative to the minimum of the three-month averages from the previous 12 months.
The Sahm indicator reached 0.43% in June, according to the Federal Reserve Bank of St. Louis. The data is sourced from Friday's Bureau of Labor Statistics June jobs report. The number has steadily increased since last year. A post on X illustrated the increase in a graph.
Why it Matters: Economic heuristics such as the Sahm Rule help economists shape monetary policy. Leading recessionary indicators could induce the Federal Reserve to cut interest rates to de-strain the U.S. economy.
According to the CME Group, the market currently gives September rate cuts a 75% probability.
One indicator does not necessarily portend a recession. Sahm herself has said that the rule is "is an empirical reality, not a law of nature." The indicator's approaching 0.5% is a warning sign, however, for the U.S. as it remains in murky economic waters.