Claudia Sahm's recession indicator, the Sahm Rule, has been triggered for the first time since 2020. But Sahm believes the current signal is a false positive due to rising labor force participation. "Maybe you can't do early-stage recessions in a reliable way," Sahm told Business Insider.
From the outside looking in, one might think it's a good time to be Claudia Sahm. All eyes are on the famous economist and her recession indicator. Her model, known as the Sahm Rule, says that the US economy is already in a downturn when the three-month moving average of the unemployment rate rises by at least 0.
5% from its trough over the previous 12 months. Last week, after July's employment report was released, the measure rose to 0.53%, officially triggering the rule for the second time since its creation in 2019; it also triggered at the pandemic's onset in March 2020.
When backdated, the model has a perfect track record of identifying recessions in real time going back to at least 1960. The indicator's accuracy has lifted Sahm to extraordinary heights in the world of economics in just five short years. Strategists and economists across Wall Street cite her rule, which has been featured in just about every major publication in recent days.
After her rule was activated on the morning of August 2, she talked about it on the "Bloomberg Surveillance" radio show with longtime broadcast journalist Tom Keene, who called her "without question, the most influential economist in America right now.