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Works like a Sahm: Recession indicators and the Sahm rule

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  • Ash, Thomas
  • Nickelsburg, Jerry

Abstract

We analyse the use of the Sahm rule as a recession predictor/indicator. We use two approaches: (1) an empirical analysis of historic recession episodes; and (2) stochastic simulations in a VAR framework. We find that in both the Sahm rule is a poor predictor of future recessions. The VAR exercise suggests this is because of its focus on the unemployment rate, which misses non-labour market shocks. This analysis suggests the Sahm rule should be restricted to the purpose that its creator intended.

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  • Ash, Thomas & Nickelsburg, Jerry, 2024. "Works like a Sahm: Recession indicators and the Sahm rule," Economics Letters, Elsevier, vol. 242(C).
    • Handle: RePEc:eee:ecolet:v:242:y:2024:i:c:s0165176524003628
    DOI: 10.1016/j.econlet.2024.111878
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    References listed on IDEAS

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    1. James Mitchell & Gary Koop & Stuart McIntyre & Aubrey Poon, 2020. "Reconciled Estimates of Monthly GDP in the US," Economic Statistics Centre of Excellence (ESCoE) Discussion Papers ESCoE DP-2020-16, Economic Statistics Centre of Excellence (ESCoE).
    2. Christoph Görtz & John D. Tsoukalas & Francesco Zanetti, 2022. "News Shocks under Financial Frictions," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(4), pages 210-243, October.
    3. Kathleen Weiss Hanley & Gerard Hoberg, 2019. "Dynamic Interpretation of Emerging Risks in the Financial Sector," The Review of Financial Studies, Society for Financial Studies, vol. 32(12), pages 4543-4603.
    4. Silvia Miranda-Agrippino & Giovanni Ricco, 2021. "The Transmission of Monetary Policy Shocks," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(3), pages 74-107, July.
    5. Dimitrios Bisias & Mark Flood & Andrew W. Lo & Stavros Valavanis, 2012. "A Survey of Systemic Risk Analytics," Annual Review of Financial Economics, Annual Reviews, vol. 4(1), pages 255-296, October.
    6. David Kelley, 2019. "Which Leading Indicators Have Done Better at Signaling Past Recessions?," Chicago Fed Letter, Federal Reserve Bank of Chicago.
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    Cited by:

    1. Bulut, Emre & Marangoz, Cumali, 2025. "Exploring the impact of economic recession indicators on global financial markets: A QVAR analysis," International Review of Financial Analysis, Elsevier, vol. 99(C).
    2. O'Trakoun, John & Scavette, Adam, 2025. "A better Sahm rule? Introducing the SOS recession indicator," Economics Letters, Elsevier, vol. 247(C).

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    Keywords

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    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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