(Hint: “Up” is the keyword.)

The Sahm Rule, a sensitive and reliable recession indicator, is two-thirds of the way toward declaring us to be in a recession.

The metric was developed in 2019 by Claudia Sahm, a section chief for the Board of Governors of the Federal Reserve. In backtesting the metric has been shown to identify a recession around three months in, far shorter than the 2+ years taken by the official sreward of recession declarations, the National Bureau of Economic Research, a private non-profit.

The Sahm Rule last rose above zero in early May and continued to climb. It is now at 0.33. If it reaches 0.5, then it is declaring a recession, one that has probably been underway for three months and we just didn’t notice. The next reading will come after release of employment stats on December 8.

Here is graph of the Sahm Rule, running from June 2022 to the present.

The last time the Sahm Rule reached recession level was in April 2020, the start of the Covid-19 Recession. Before that, it reached above 0.5 in February 2008, the start of the Great Recession.

The Rule has been backtested to 1949 and closely matches what later proved to be recessions. Here’s a big-picture chart, showing the Sahm Rule from 1949 to the present, with recessions marked on the chart in gray.

The charts were produced the FRED, an excellent source of charts and data created by the St. Louis Federal Reserve Bank.

The Sahm Rule is a metric I take seriously. Elliott Wave Analysis, which is my focus as a trader, operates independently of the economy, its statistics and its great events, such as recessions. Be it a time of feast or famine, the market’s charts will move in their time-honored way, five-wave trends alternating with corrections, which normally have three waves.

But those outside statistics and events can have huge influence on the timing and the depth of Elliott waves, a fact that, perhaps, we are on our way to discovering anew.

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By Tim Bovee, Portland, Oregon, November 26, 2023

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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Based on a work at www.timbovee.com.