Has the Recession Started?
To answer this question, we develop a new Sahm-type recession indicator that combines vacancy and unemployment data. The indicator is the minimum of the Sahm indicator -- the difference between the 3-month trailing average of the unemployment rate and its minimum over the past 12 months -- and a sim...
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Format | Journal Article |
Language | English |
Published |
11.08.2024
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Abstract | To answer this question, we develop a new Sahm-type recession indicator that
combines vacancy and unemployment data. The indicator is the minimum of the
Sahm indicator -- the difference between the 3-month trailing average of the
unemployment rate and its minimum over the past 12 months -- and a similar
indicator constructed with the vacancy rate -- the difference between the
3-month trailing average of the vacancy rate and its maximum over the past 12
months. We then propose a two-sided recession rule: When our indicator reaches
0.3pp, a recession may have started; when the indicator reaches 0.8pp, a
recession has started for sure. This new rule is triggered earlier than the
Sahm rule: on average it detects recessions 0.8 month after they have started,
while the Sahm rule detects them 2.1 months after their start. The new rule
also has a better historical track record: it perfectly identifies all
recessions since 1929, while the Sahm rule breaks down before 1960. With August
2024 data, our indicator is at 0.54pp, so the probability that the US economy
is now in recession is 48%. In fact, the recession may have started as early as
March 2024. |
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AbstractList | To answer this question, we develop a new Sahm-type recession indicator that
combines vacancy and unemployment data. The indicator is the minimum of the
Sahm indicator -- the difference between the 3-month trailing average of the
unemployment rate and its minimum over the past 12 months -- and a similar
indicator constructed with the vacancy rate -- the difference between the
3-month trailing average of the vacancy rate and its maximum over the past 12
months. We then propose a two-sided recession rule: When our indicator reaches
0.3pp, a recession may have started; when the indicator reaches 0.8pp, a
recession has started for sure. This new rule is triggered earlier than the
Sahm rule: on average it detects recessions 0.8 month after they have started,
while the Sahm rule detects them 2.1 months after their start. The new rule
also has a better historical track record: it perfectly identifies all
recessions since 1929, while the Sahm rule breaks down before 1960. With August
2024 data, our indicator is at 0.54pp, so the probability that the US economy
is now in recession is 48%. In fact, the recession may have started as early as
March 2024. |
Author | Saez, Emmanuel Michaillat, Pascal |
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BackLink | https://doi.org/10.48550/arXiv.2408.05856$$DView paper in arXiv |
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Snippet | To answer this question, we develop a new Sahm-type recession indicator that
combines vacancy and unemployment data. The indicator is the minimum of the
Sahm... |
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SubjectTerms | Quantitative Finance - Economics |
Title | Has the Recession Started? |
URI | https://arxiv.org/abs/2408.05856 |
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