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Strategies & Market Trends : Technical analysis for shorts & longs

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Jan 20 4:00 PM EST

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To: Johnny Canuck who wrote (59574)	8/4/2024 1:59:31 AM
From: Johnny Canuck	Read Replies (1) of 69917

What is the sahm rule in regard to perdicting a recession and what is it based on? Sources fred.stlouisfed.org favicon Real-time Sahm Rule Recession Indicator (SAHMREALTIME) · fred.stlouisfed.org Sahm Recession Indicator signals the start of a recession when the three-month moving average of the national unemployment rate (U3) rises by 0.50 percentage ... fortune.com favicon fred.stlouisfed.org favicon nytimes.com favicon marketwatch.com favicon View 4 more Answer The Sahm Rule is a recession indicator developed by economist Claudia Sahm. It signals the start of a recession when the three-month moving average of the national unemployment rate (U3) rises by 0.50 percentage points or more relative to its low during the previous 12 months. This rule is based on real-time data, which includes the unemployment rate and its recent history as available in a given month. The primary purpose of the Sahm Rule is not to predict future recessions but to provide a timely signal that a recession is already underway. This allows policymakers to take swift action to mitigate the recession's severity, such as issuing stimulus payments. The rationale behind the rule is that recessions often follow a cumulative, self-reinforcing pattern where an initial minor slowdown can escalate into a more significant economic downturn. How accurate has the Sahm Rule been in predicting past recessions Sources marketwatch.com favicon fred.stlouisfed.org favicon View 2 more Answer The Sahm Rule has been highly accurate in identifying the onset of recessions, though it's important to note that it's designed to indicate that a recession has already begun rather than predict future recessions. Here are the key points about its accuracy: Historical performance: The Sahm Rule has been very accurate in identifying downturns in the business cycle since 1959. It has correctly signaled the early stages of all recessions since then. Low false positives: The rule has generated only two false positive recession alerts since 1959. In both cases (1959 and 1969), the warnings appeared just a few months before an actual economic downturn began. Timeliness: The Sahm Rule typically signals a recession before GDP data makes it clear that one has started. This early detection is valuable for policymakers who need to respond quickly to economic downturns. Recession onset indication: On average, the commonly used version of the Sahm Rule (with a 3-month simple moving average) has triggered approximately three months into each of the last NBER-defined recession starts. Recession end detection: A lesser-known feature of the Sahm Rule is its effectiveness in assessing when recessions end. The standard 3-month smoothed version has on average a minimum two-month lag to recession ends. Reliability: The simplicity of the calculation contributes to its reliability. It relies solely on the national unemployment rate, which is published monthly by the Bureau of Labor Statistics. Recognition: The Sahm Rule has received recognition from popular economics news sources and economists. It's described as a "well-regarded economic rule" by Barron's and a "fail-safe gauge" by CNBC. While the Sahm Rule has been highly accurate historically, it's important to note that economic conditions can change, and no indicator is perfect. The rule should be used in conjunction with other economic data and indicators for a comprehensive assessment of economic conditions.

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