"Economist Claudia Sahm is an expert (if not the expert) on the conditions that presage a recession and how policymakers should react as a result. She is the creator of "the Sahm Rule," an employment indicator monitored by everyone from central banks to the global financial giants. The Sahm Rule says that a recession is likely when the three-month moving average of the national unemployment rate rises by 0.5 percentage points or more, relative to the minimum of the three-month averages from the previous year."
"Therein lies the problem: During the pandemic, Sahm believes the tectonic plates of the economy began shifting and haven't settled since. The labor market has behaved strangely since the pandemic. President Trump's anti-immigration drive has reduced the number of available workers. Employers have been reluctant to hire for new roles. Unemployment has ticked up but isn't out of control by historical standards. Hiring remains tight, in a "low-hire, low-fire" environment."
Current U.S. macro data show mixed but not catastrophic signals: hiring has slowed, unemployment has inched up without a large spike, inflation has not surged from tariffs, and consumer spending remains strong. The Sahm Rule flags recessions when the three-month unemployment average rises 0.5 percentage points above the prior year's minimum and was highly reliable before the pandemic. Pandemic-era shifts have altered labor supply and hiring behavior, with fewer available workers and employer reluctance to create roles. Political pressures on courts, the central bank, and agencies have eroded institutional independence, increasing the risk that cumulative events will reshape economic stability.
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