Recession watch
The yield curve and the Sahm rule — the two most-watched warning lights.
Two indicators have the best track records for warning of recessions. The yield curve, measured here as the 10-year Treasury yield minus the 2-year, turns negative when markets expect rate cuts ahead, and it has inverted before every recession since the 1970s. The Sahm rule, devised by economist Claudia Sahm, signals when the three-month average unemployment rate rises half a point above its low of the previous year.
Both went off in this cycle. The curve inverted in July 2022 and stayed inverted until September 2024, the longest stretch on record, bottoming at −1.08 points in July 2023. The Sahm rule triggered in July 2024 and peaked at 0.57 in August.
No recession followed. Sahm herself argued that the 2024 rise in unemployment came partly from a surge in labor supply, as more people entered the workforce, rather than from layoffs.
Today the curve is positive, at 0.41 points, and the Sahm indicator is back below zero. Neither is flashing. The last few years are a reminder that even the best indicators can misfire when the economy is doing something unusual.
- T10Y2Y · 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
- SAHMREALTIME · Real-time Sahm Rule Recession Indicator