Sahm Rule for Australia

The Sahm indicator is an alternative way to spot recessions - using rapid changes in unemployment. It compares the latest three month average unemployment to the minimum in the previous 12 months.

If the difference is greater than 0.5%, then the indicator is read as showing that the economy is in a recession.

Here is the St Louis Fed's indicator for the US: Sahm Rule in the US.

This neatly lines up with the official US recessions, as called by their National Bureau of Economic Research.

Grattan Institute has previously looked at the less clear relationship between official recessions and the Sahm indicator in Australia here.

Now is probably a good time to start looking at it more closely. The low unemployment rate and the RBA's explicit intent of raising it mean that this indicator will probably cross its 0.5% threshold at some point in the near future. How much it needs to or ends up rising before inflation is contained to RBA's satisfaction is the open question.