One tool that has gained attention recently is Sahm’s Rule — a straightforward yet insightful indicator of recession.
Developed by Claudia Sahm, an economist at the Federal Reserve, the rule posits that the U.S. economy is in recession when the three-month moving average of the unemployment rate rises by 0.5 percentage points above its low in the previous 12 months. This increase typically signals the early stages of an economic downturn.
Why does it matter? Unlike other economic indicators that are often lagging, Sahm’s Rule leverages unemployment data, which is reported more frequently and promptly. This makes it a valuable tool for policymakers, including those advocating for timely fiscal responses like stimulus checks.
Is it foolproof? Not entirely. While Sahm's rule is a valuable tool, it's not infallible. Other indicators like non-farm payrolls and real personal income are still showing growth, complicating the recession picture.
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