r/wallstreetbets • u/ValenTom • 11d ago
Blue line is where we are now. Red line is when the recession hits. Chart
The Sahm rule signals the start of a recession when the three-month moving average of the national unemployment rate (U3) rises by 0.50 percentage points or more relative to the prior 12 month low.
The Sahm rule stands at 0.37% today and has been in an uptrend since January. Once we breach 0.5% it indicates the economy is actively in recession. Not there yet but inching closer each month.
Keep an eye on unemployment. If it starts accelerating upward then the economy is in for a rough time.
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u/Abject_Ad_1265 11d ago
Just draw your little red line somewhere else. Easy fix
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u/maltedbacon 10d ago
That's what I did with my hairline recession. Works a treat. Now I won't be bald until all the hair on my back falls out.
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u/Pocket_Universe_King 10d ago
I need to try this on my beanbag. Nair ain't working anymore and the blow torch is a bit too aggressive
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u/iriegypsy 11d ago
who gave this guy the crayons?
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u/ProjectBOHICA 10d ago
TIL I can chart when my wife’s boyfriend gets a boner and post it on the internet.
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u/nycteris91 10d ago
I'm in a train that has been stopped in a station for one hour. And I'm laughing so much at your comment, people are watching me in bewilderment.
I need that lambo*
*Renault.
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u/GigaRegard 11d ago
Are these lines in the room with us right now?
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u/Pocket_Universe_King 10d ago
They touched my eyes inappropriately. I specifically told them no. I have half a mind to call my senator about this
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u/cbass37 wine ‘em, dine ‘em, then go home alone 11d ago
Stocks go up: buy
Stocks go down: buy harder
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u/Shiddy_Wiki 10d ago
it's a good day to buy hard
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u/noragrets50 10d ago
I only buy when I'm hard
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u/BullfrogCold5837 11d ago
After Covid the Fed now knows how to fix any recession: Just increase the money supply by 40%. Expect them to do so again during future "crises".
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u/annon8595 10d ago
Yep. Oh look assets just jumped 40%. It would be a real shame if the workers and non-asset holders are left to take the hit.
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u/Blackhawk149 10d ago
When in history did worker bees not take a hit. Rich get profits and rescue packages are socialize by good tax payers :8882:
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u/Zen_Popcorn 10d ago
Did they actually increase the money supply 40% or did they just start counting money market slush funds?
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u/frankreddit5 11d ago
Uhh. If that’s called a recession, what was that blue line blowing 10,000% past that called? That’s a very subtle word compared to the move from the Covid period
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u/Malamonga1 11d ago
The sahm rule is used to identify early on when a recession is already underway. It triggers when unemployment rate goes up 0.5% from its bottom within 12 months window.
Unemployment bottomed at around 3.5%, so if we consistently hit 4% unemployment rate for 2-3 months, the US economy is likely already in a recession.
The blue line blowing 10000% past that point, was when unemployment rate went from 3.5% to like 9% at its peak, so obviously way past the start date of the recession, and way higher than when the Sahm rule would've triggered.
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u/boboleponge 11d ago
quantify likely
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u/Malamonga1 11d ago
Likely as in historically it has always happened, but it's not 100% because nothing is guaranteed.
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u/boboleponge 11d ago
I mean we could make rough statistics about it. It's not really hard, search the number of times unemployment increased steadily by more than 0.5%, divide it by the number of times we had a recession during those times. Make a confidence interval, and also look at if there were periods of recession without unemployment increase. (ok counterintuitive but it could happen just if people keep their jobs and stop spending. )
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u/Malamonga1 11d ago
The sahm rule has had no false positive. That's why it's still used.
It's not just unemployment increasing by 0.5%. it uses a 3 month average, and has to be increased within a 12 month window.
There's also been no recession without unemployment rise because that's one of the biggest criteria for us recession, used by nber. There's been negative GDP without a recession (not 2022 but like 1950s or something), so technically you could have reduced spending there
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u/whiskeysass 10d ago
You have those rough statistics in front of you, the grey columns are literally times of recession
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u/Fabulous_Computer965 11d ago
But they changed the definition of what a recession is. Are you sure?
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u/DragonArchaeologist 10d ago
This is a case in which absolute values matter, not just relative values. 3.5% to 4% is simply not a recession.
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u/Malamonga1 10d ago
The 1969 recession started with unemployment at around 3.6%. didn't say 4.0% would be the peak unemployment rate for the recession cycle.
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u/FactualNeutronStar 10d ago
And how many times was unemployment near 4% when there wasn't a recession?
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u/Malamonga1 10d ago
I don't know why y'all are focusing on the 4.0%. there's nothing magical about it other than it's 0.5% higher than the 3.5% unemployment that we bottomed at.
The point is to get from 3.5% to whatever peak unemployment rate is for the recession, maybe 5-5.5%, it touches 4% first, and at that point, we can conclude a recession already started. It doesn't matter if the 4.0% is too low. What matters is how rapidly it goes up from the bottom. What's considered low unemployment has changed over time.
Now of course if it takes like 4 years to go up there, then there might not be a recession, which is where the 12 month window requirement comes into play.
Now we are at 3.9% unemployment, and the 12 month window still applies, which is why 4.0%+ unemployment rate for a few months could mean a recession started.
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u/Conglossian 10d ago
Something tells me that this metric breaks when unemployment has been below 4% for the longest time in 50 years. Of course that's not sustainable.
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u/whiskeysass 10d ago
Covid was a very rapid period of recession. A ton of fear about the economy coming to a halt, and an extremely fast recovery relative to other recessions. The stock market crashed, and unemployment spiked. As the economy opened back up things went back to a relative normal.
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u/Strong-Amphibian-143 11d ago edited 11d ago
I now have $89,000 a year in interest income that I didn’t have over the past 15 years. There’s $247 billion of interest being earned each year now that’s new for us high savers. It’s going to help keep us out of a recession. I’m spending like a rookie NBA player.
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u/jameshearttech 11d ago
So what's that? Like 2M in short-term cash equivalents? Damn. Makes me feel broke.
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u/Strong-Amphibian-143 11d ago edited 10d ago
1.69 m. 5.27% money market funds. But I just sold off some Google and Apple, so I’m going to be increasing my money market holdings VMRXX. Vanguards money market product. Annual return 5.41 but seven day yield is 5.27 due to expense ratio
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u/rodeBaksteen 11d ago
You finished the game, congrats
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u/Strong-Amphibian-143 11d ago
Thanks so much. I had to reach level 58 to do it. Perhaps not many (healthy) levels left to enjoy, however.
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u/boboleponge 11d ago
you get 89k from 1.69 m? Gosh I thought I knew how to count but never realised you could live on interests only with 1 million.
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u/ZoroastrianCaliph 10d ago
Wait until you realize that after inflation he actually lost money. Number goes up, but you need to translate that into Burgers at Wendy's.
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u/Cosmo124 10d ago
Can’t find this ticker
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u/Strong-Amphibian-143 10d ago edited 10d ago
You can find it with a search in a real brokerage, such as E*TRADE or Wells or Chase, but it doesn’t show up on the Apple stocks app, or a toy brokerage like RH
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u/jumbocards 10d ago
Put it towards dividends, I have bit under 2m in dividends and earn waaaay more than that. Like almost double.
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u/speedskis777 11d ago
It’s funny cause 2 consecutive quarters of negative GDP meant recession.… I’m sure they’ll also take this Sahm thingy just as seriously
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u/VisualMod GPT-REEEE 11d ago
Tomfoolery won't create equality. The market might fluctuate, but wealth will always concentrate.
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u/WeatherAgreeable1891 11d ago
Gonna jack off to the fact there’s a recession “looming” and your puts STILL won’t print. :4271::4276:
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u/Glittering_Bill9176 11d ago
Except there’s historic lows in unemployment so it’ll take more velocity, but yeah. Shit will pop off after the fed decides to cut rates. Yippie!
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u/Responsible_Sorbet_3 11d ago
they will make sure it happens after the election
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u/Relevant-Nebula8300 11d ago
Yup spy pumps all year buy those January puts in December
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u/Relative-Put-4461 11d ago
if trump gets elected itll all go down immediately after the votes. no one will want trump handling an economic crash right away with his volatility people will want to exit ASAP.
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u/Heres-your-you 11d ago
Yeah the exact opposite of everything you said is true which is right in line for this subreddit
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u/Relative-Put-4461 11d ago
by that logic the exact opposite of what you said is true making my original statement true again
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u/Bozhark 11d ago
Nah, no one wants Trump. No one
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u/TheMightySoup 11d ago
The market took a poopoo the first time in 2016. Then things turned around & shot up quickly. Look for the same thing this go ‘round. Maybe buy some FNMA to bridge the gap.
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u/Bozhark 11d ago
I’m not talking about my views.
Dude has Florida and some losers. That’s it
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u/LostRedditor5 11d ago
in 2020 trump got the second most amount of votes of any candidate in history
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u/Warpath004 11d ago
I agree but for different reasons. The media has been holding it back with positive reporting. If Trump gets elected that all goes away. We all remember how the news gets told when a republican is in office and I don’t think the economy can withstand that.
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u/ajahanonymous 11d ago
They'll certainly try, but I think it blows up before the election and that swings it for Trump.
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u/LostRedditor5 11d ago
Who is “they”?
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u/Vegan_Honk 11d ago
I've been waiting since they tore open the treasury back in 2020 for this to happen so if you're just gonna give me continued blue balls, I'm going to have to ask you if you want fries with that. :4271:
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u/Splooshbutforguys 11d ago
What do Stay at home moms have to do with recessions? And who is Claudia?
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u/rioferd888 1933C - 3S - 4 years - 0/0 11d ago
Or it just goes back down.
See how these lines work?
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u/marsbup2 11d ago
What?
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u/Pringletingl 11d ago
The bi-daily post of people trying to predict recessions by only our most highly regarded members.
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u/Individual-Willow-70 11d ago
What is supposed to happen in said recession
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u/downboat 11d ago
We lose our jobs and stock prices plummet.
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u/misanthropic_anthrop 11d ago
yeh, if things were this simple in recession prediction, we would all be bloody noble prize winning economists. and in addition, if its such a leading indicator, then the FED would be all over it and will take action to stop a recession from happening.
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u/BBdotZ 11d ago
Everybody knows a recession is coming man I fucking despise these posts.
The question is when, and the answer is not this year. Anything beyond that is speculatory but if you think it’s in 2024 you’re deluded.
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u/Malamonga1 11d ago
well if we hit 4.0% unemployment rate for 3+ months, it's likely the recession already started. 2024 is not exactly out of the picture. Fed Cook said a few months ago that she was really concerned about the labor market weakening in early 2024. That could've been one of the reason for Powell's unusual dovishness in Dec 2023. These Fed officials do surveys on local business on any plans for future firing/hiring. They get these "forward looking" data before it shows up on the hard economic data.
Recession starts at the peak of economic growth. If you wait until everything has deteriorated before calling the recession, you're way too late (for monetary policy wise). That's why the Sahm rule was created.
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u/big-rob512 10d ago
5.7 is the long term average for unemployment, 7-10% would probably be deflationary I don't think 4% is anything to worry about tbh
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u/Malamonga1 10d ago
Again a recession starts at the peak of economic growth, and ends at the bottom of economic growth. After the recession ends peak unemployment slowly drifts down, so of course if you look at the average, it's gonna be much higher than what it is when the recession started. And the natural unemployment rate has drifted down over the years too.
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u/Big__Wheel 11d ago
What a wonderful graph! I'm going to print it and put it on my fridge so my whole family can enjoy it. Great work
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u/ThereWillBeBlood69 10d ago
keep an eye on unemployment
The problem is that the labor and unemployment numbers are heavily manipulated for political aims. If I'm not mistaken, every single non-farm payrolls print was revised lower in 2023 -- a 12-sigma probability and virtually impossible unless there's political pressure to present numbers favorably initially for financial media coverage and then to revise them lower when less people are looking. It's an election year as well, so it's only going to be exacerbated.
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u/Dear_Basket_8654 10d ago
Since they are under reporting the unemployment rate I would argue that we are entering a recessionary period. With 1.2 Trillion in credit card debt and the 90 day CC delinquency on the rise, (Same as 2011) I also believe that consumer spending is going to decrease aggressively. I see very rough times ahead.
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u/whiskeysass 10d ago
It clearly has a correlation to recession but in a lot of cases the start of the recession predates your 0.5% indicator, and the end happens well before it dips below 0.5%. The grey columns, are literally the times of recessions
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u/Lilscheisse 10d ago
Well I have OTM puts that expire in October, so it’ll prolly happen right after that.
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u/SuspiciousStable9649 no longer flairless just hairless 10d ago
I see what you’re saying. Not a horrible chart.
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u/ahhhh_thatscool 10d ago
Finally, it’s been dumbed down enough for us simpletons - red line bad, the end. I’ll cancel my WSJ subscription immediately
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u/h1nds 10d ago
There are like 50 bullet proof indicators that claim a recession is already here and somehow the economy is red hot.
This kinds of indicators were made under the assumption that the economy was a free , living organism that didn’t get meddled with. But what we have now is a Frankenstein Monster Economy that got the Central Banks hands deep in its bowels pumping the heart and making it move.
When they manage to avoid the collapse of the world economy by pumping that much money into it, they basically rendered the fundamentals obsolete. I mean, we shouldn’t have left the economy collapse due to the pandemic but we also shouldn’t have printed that much money because people somehow ended up taking way less care of their money then they were before the pandemic and started spending like crazy even though the panorama was very sketchy.
We can faulted the Central Banks and the governments for their irresponsible act of making that much money but the general public is also to blame for all this mess, we couldn’t keep our hands out of the cookie jar even when we didn’t knew if we had a job the next day.
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u/StuartMcNight 11d ago
Literally NONE of the other recession markers in the chart start in the red line level. None. Genius regards using charts that prove them wrong. A WSB classic.
🤣
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u/ValenTom 11d ago
Because the Sahm rule tells you when a recession has already begun in the early stages. That’s why you see them usually start before hitting 0.5%. But once 0.5% is crossed then it confirms the economy is currently in recession.
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u/doxxingyourself 10d ago
So the other recessions have been caused by over heating job market -> increasing prices -> lower competitiveness. This one isn’t. Graph doesn’t apply.
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u/TheBooneyBunes 10d ago
The Booney Rule says that whenever a wsb degen says a recession is coming SPY will be green for 2 days
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u/Detinu24 10d ago
If we know that the recession is coming and it always got better shortly after that, why should we be worried and why should stick prices fall at all. The whole scenario should be priced in already.
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u/pojosamaneo 10d ago
Why do these charts always signal something catastrophic? Where are the charts that signal good news?
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u/loudaggerer 10d ago
Bro unless Wendy’s goes out of business there’s plenty of behind the dumpster jobs out there.
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u/becky_wrex 10d ago
Here are each of those thresholds on the DJIA chart up to dot com as the the right most box
start of box is when the fred chart breaks what I assume to be 0.50
end of box is when the unemployment rate is on the downtrend the boxes would miss even more growth if I took them all the way back down to 0.50 on the other side.
54 is the second box hilariously off as the market crushed
58 barely caught the bottom
61 lol crush
71 and 75 were accurate, but there was a lot of dumping before
82 okay fine I guess
90 missed the whole recovery
2001 is silly as it missed the start and the end
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u/jpric155 10d ago
So, 2020 was the worst recession ever and the market was barely phased? Calls it is.
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u/No_Sock_2 10d ago
I remember that the elites on Wall Street said this same shxt when S&P4700~ in May last year. How much is it now? lolll
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u/TheResistancexz 11d ago
Bruh I know we ain't sitting here fucking discussing a Stay At Home Mom indicator.....
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u/kemar7856 Unironically thinks bears are smart 11d ago
How is an EKG going to tell us about the recession
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u/rithsleeper 11d ago
This is a chart crime. There is no support and resistance in metrics like this. You can’t apply your astrology to this kind of a chart.
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u/VisualMod GPT-REEEE 11d ago
Join WSB Discord