After the July Payroll Report, How Close Is the Sahm Rule to Its Trigger?

After the July payroll release, the question was whether the United States was approaching a recession. A single month's job losses cannot settle that question. We also need to assess whether unemployment is rising persistently. The Sahm Rule is one way to track that change.

How is it calculated?

Take the three-month average unemployment rate and subtract the lowest three-month average from the preceding twelve months. A difference of 0.5 percentage points or more triggers the indicator's recession signal.

Which reading did the original article use?

The June 2026 reading was 0.07, below the 0.5 trigger. On the basis of that particular observation, the Sahm Rule had not issued a recession signal.

What does the July payroll report show?

July unemployment was 4.1%, while nonfarm payrolls declined by 23,000. Job losses indicated some weakening, but the Sahm Rule measures sustained changes in unemployment. A single month's payroll decline is not a substitute for that calculation. Assessing the subsequent trend requires the July indicator and later readings as well.

A trigger does not establish that a recession has begun

There has also been an earlier episode in which the reading reached 0.53 and triggered the rule without a subsequent recession. The indicator helps identify risks; it cannot establish a recession on its own. Trends still matter before a trigger, and other economic evidence still matters afterward.