The most recent recession compared to 2008 and 2001.
In the 2001 and 2008 recessions, the limit of the Sahm Rule (real time) is passed when unemployment rises significantly due to an increase in the unemployment rate (not due to an increase in the labor force). Figures 1 and 2 show the real-time average of the Sahm Rule (black line) versus the decay of contributions to change in the unemployment rate.
Figure 1: A real-time indicator of Sahm’s law (black bar, left scale), and the contributions to change in the unemployment rate, from labor force growth (blue bar, right scale), from the number of unemployed (brown bar, right scale), all in percentages. The NBER defined the number of months after sunset to pass the gray recession days. Source: FRED, BLS via FRED, NBER, and author’s statistics.
Figure 2: A real-time indicator of Sahm’s law (black bar, left scale), and the contributions to change in the unemployment rate, from labor force growth (blue bar, right scale), from the number of unemployed (brown bar, right scale), all in percentages. The NBER defined the number of months after sunset to pass the gray recession days. Source: FRED, BLS via FRED, NBER, and author’s statistics.
Compare recent limit violations:
Figure 3: A real-time indicator of Sahm’s law (black bar, left scale), and the contributions to change in the unemployment rate, from labor force growth (blue bar, right scale), from the number of unemployed (brown bar, right scale), all in percentages. Source: FRED, BLS via FRED, and author’s statistics.
The contribution from staff growth is huge in this episode, which is partly due to Dr. What Sahm was talking about (Yahoo funds):
“This time can be really different,” said Sahm. “[The Sahm Rule] it may not tell us what it told us in the past, because of these changes caused by labor shortages, as people stop working, until now there are immigrants who arrived recently. That all can be seen in the changes in the number of unemployed people, which is the core of Sahm’s Law.”
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