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Has the Recession Started?

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  • Michaillat, Pascal
  • Saez, Emmanuel

Abstract

To answer this question, we develop a new Sahm-type recession indicator that combines vacancy and unemployment data. The indicator is the minimum of the Sahm indicator -- the difference between the 3-month trailing average of the unemployment rate and its minimum over the past 12 months -- and a similar indicator constructed with the vacancy rate -- the difference between the 3-month trailing average of the vacancy rate and its maximum over the past 12 months. We then propose a two-sided recession rule: When our indicator reaches 0.3pp, a recession may have started; when the indicator reaches 0.8pp, a recession has started for sure. This new rule is triggered earlier than the Sahm rule: on average it detects recessions 0.8 month after they have started, while the Sahm rule detects them 2.1 months after their start. The new rule also has a better historical track record: it perfectly identifies all recessions since 1929, while the Sahm rule breaks down before 1960. With August 2024 data, our indicator is at 0.54pp, so the probability that the US economy is now in recession is 48%. In fact, the recession may have started as early as March 2024.
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  • Michaillat, Pascal & Saez, Emmanuel, 2025. "Has the Recession Started?," Santa Cruz Department of Economics, Working Paper Series qt8ff2s3v6, Department of Economics, UC Santa Cruz.
    • Handle: RePEc:cdl:ucscec:qt8ff2s3v6
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    1. 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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