Tomorrow is Job's Day, and we will learn what the unemployment rate was in November. So, it'll also be time to update the Sahm rule, my recession indicator.
Have you tried Sahm rule on European states? It would be interesting to see how Sahm rule weighs on those economies. I know they are different from US but still have many similarities.
Because this post is so admirably clear, I was able to try it for the U.K., and it didn't work too well. (3/5 recessions identified within two first quarters of negative growth, and four false positives). That said, maybe the global macro cycle is just linked up with US cycle so it doesn't make sense to go country-by-country. Would appreciate Dr. Sahm's thoughts on that.
The 3 month average (equally weighted) will introduce sampling artifacts into the result. A weighted average will give a clearer signal.....try weights of 0.0909, 0.36363, 0.5454 or perhaps a wider window....the sum of weights should equal one whatever the ramp looks like.
Thank you for putting this together! I struggled with the exact calculation. This clarified it so much! TY Curious if this sort of methodology has worked with any of the continuing claims/initial claims data. TY
You write: "But remember, even if it does trigger, a recession is not a done deal. The Sahm rule is a historical pattern, and this time could easily be different."
My close in the post linked below: "Goldman Sachs assumption, therefore, is not “hopium”, but reflects the view that the Fed will keep NGDP growth falling to a 5% growth rate, say, that will be maintained. With that. the likelyhood that the Wage/NGDP ratio will remain stable is high, and that will help keep the unemployment rate also low and stable, making it “this time is certainly different” come to pass."
Have you tried Sahm rule on European states? It would be interesting to see how Sahm rule weighs on those economies. I know they are different from US but still have many similarities.
Because this post is so admirably clear, I was able to try it for the U.K., and it didn't work too well. (3/5 recessions identified within two first quarters of negative growth, and four false positives). That said, maybe the global macro cycle is just linked up with US cycle so it doesn't make sense to go country-by-country. Would appreciate Dr. Sahm's thoughts on that.
Appreciate the calculation process. Very understandable.
Good statistical insight!
The 3 month average (equally weighted) will introduce sampling artifacts into the result. A weighted average will give a clearer signal.....try weights of 0.0909, 0.36363, 0.5454 or perhaps a wider window....the sum of weights should equal one whatever the ramp looks like.
The purpose of the Sahm rule is to trigger stimulus payments. It needs to be simple.
Thank you for putting this together! I struggled with the exact calculation. This clarified it so much! TY Curious if this sort of methodology has worked with any of the continuing claims/initial claims data. TY
Curious if using headline or adjusted unemployment makes a difference?
You write: "But remember, even if it does trigger, a recession is not a done deal. The Sahm rule is a historical pattern, and this time could easily be different."
My close in the post linked below: "Goldman Sachs assumption, therefore, is not “hopium”, but reflects the view that the Fed will keep NGDP growth falling to a 5% growth rate, say, that will be maintained. With that. the likelyhood that the Wage/NGDP ratio will remain stable is high, and that will help keep the unemployment rate also low and stable, making it “this time is certainly different” come to pass."
https://marcusnunes.substack.com/p/hopium
Many pundits I have read who should know better seem unable to do the basic math to calculate the Sahm Rule properly, so much for their "expertise"!