Sahm Rule: Identifying Recession Signals Through Changes in the Unemployment Rate
The Sahm Rule compares the recent unemployment rate with the past 1 year’s low and uses a simple threshold to assess whether the economy may have entered a recession. It is an early-warning indicator and should not be treated as standalone confirmation of a recession.
Core Assessment Method
First, calculate the average unemployment rate over the most recent 3 months, then identify the lowest level of the 12-month average unemployment rate in each period over the past 3 months. If the former exceeds the latter by 0.5 percentage points or more, the Sahm Rule signals that the economy may already be in recession.
Calculation Example
If January to March unemployment rates are, respectively, 4.0%、4.1%and 4.2%, the recent average is 4.1%. Assume that, over the past 1 years, the lowest 3-month average was 3.5%, a difference of 0.6 percentage points, exceeding the 0.5-percentage-point trigger threshold.
How to Interpret the Signal
This rule was proposed by economist Claudia Sahm and was initially intended to help launch stimulus spending promptly during recessions. Its advantages are that the data is commonly available and the calculation is straightforward, but a trigger signal only indicates that recession risk has increased; an actual assessment still requires consideration of additional economic data, including output and employment.
Relationship to the Cryptocurrency Market
The Sahm Rule itself measures the overall economy and does not directly assess the cryptocurrency market. The material merely borrows its approach and proposes monitoring indicators such as industry employment, trading volume, market capitalization, or active addresses; these indicators cannot directly apply the original threshold of 0.5 percentage points.
Original Tutorial
https://www.binance.com/zh-CN/academy/glossary/sahm-rule
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