PODCAST:Masters in Business
TITLE:At the Money: Forecasting Recessions with Claudia Sahm
DATE:2024-01-31 00:00:00
URL:
MODEL:gpt-4-gizmo
In the "Masters in Business" episode titled "At the Money: Forecasting Recessions with Claudia Sahm," Bloomberg’s Barry Ritholtz interviewed Claudia Sahm, a former Federal Reserve economist and creator of the Sahm Rule, about identifying recessions in real-time. The podcast discussed the challenges of accurately predicting economic downturns and the significance of the Sahm Rule in forecasting recessions.
Claudia Sahm explained that a recession is a broad-based contraction in economic activity that affects various industries and regions. The depth and length of recessions vary, with some being mild and others, like the 2008 global financial crisis, being severe. The Sahm Rule, which Sahm developed, is a simple yet effective tool for identifying recessions. It looks for small increases in the national unemployment rate, specifically a half percentage point rise in the three-month average of the unemployment rate compared to its lowest point in the prior 12 months. If this occurs, it indicates the onset of a recession.
The Sahm Rule has a perfect track record since the 1970s, triggering early in every recession without any false positives. Despite its simplicity, it's based on the rationale that the unemployment rate is a critical indicator of the US economy's health. Sahm emphasized that the rule was initially designed to signal when fiscal stimulus measures should be enacted, rather than as a broad economic forecasting tool.
The discussion also touched upon the challenges of recession forecasting, especially in the current economic environment shaped by the COVID-19 pandemic and its aftermath. Sahm noted that many traditional economic relationships have broken down during this period, making it harder to predict recessions based on past patterns. She advised investors to keep a close eye on the labor market, as it is crucial to understanding the economy's direction.
Overall, the episode provided insights into the complexities of economic forecasting, the importance of the labor market in understanding economic trends, and the utility of the Sahm Rule in signaling potential recessions.
