What is the Sahm rule, and why are U.S. market watchers ‘freaking out?’

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Sahm Rule Noticias

Canada Economy,Recession,Unemployment Rate

The 'Sahm rule' has been triggered in the United States. Here's what this indicator typically means for recessions and what Canadians should know.

Canada’s economy kept growing, despite a slowing pace through the second quarter of the year, according to preliminary data released Wednesday. Anne Gaviola has more on why many economists don’t see this as enough to dissuade the Bank of Canada from cutting interest rates in September – Jul 31, 2024“Folks in the U.S. are, quite frankly, freaking out right now over the economy.

If the three-month moving average unemployment rate rises 0.5 percentage points over its low point in the preceding 12 months, the Sahm rule is triggered. But after the U.S. non-farm payrolls report last Friday saw the jobless rate unexpectedly jump to 4.3 per cent, the conditions for the Sahm rule were met.

The Sahm rule is slightly different for the Canadian context, triggering at a 0.6 per cent rise in unemployment, but by June the differential was nearly at a full percentage point already. The Sahm rule also doesn’t take into account the nature of rising unemployment. The jobless rate in Canada has risen over the past two years as employment gains have failed to keep pace with a rapidly growing population, rather than being spurred by widespread layoffs.Canada’s economy has so far remained out of a recession when looking solely at quarterly real gross domestic product figures, supported largely by that same population growth.

“The past four and a half years have been particularly weird and unprecedented,” she says. “So it wouldn’t be crazy for it to break the rule for the first time in the U.S. and the second time in Canada.”The other difference between the U.S. and Canada is that the central bank north of the border is already two interest rate cuts into its easing cycle. Earlier signs of weakness in the Canadian economy have the Bank of Canada ahead of its counterpart in the U.S.

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