A better Sahm rule? Introducing the SOS recession indicator

Abstract

We introduce a new recession indicator based on the Sahm rule methodology. The Scavette-O'Trakoun-Sahm-style (SOS) indicator uses the insured unemployment rate to correctly signal the past seven recessions since 1971. Additionally, our analysis suggests that the SOS improves upon the Sahm rule such that it has fewer (none) false positives and identifies recessions faster on average. Additionally, the SOS rule benefits from being available at a higher frequency (weekly) than the Sahm rule (monthly) and not subject to several sources of sampling bias such as incorrect responses or nonresponse. This suggests that the SOS indicator may be a desirable alternative for users of the Sahm rule: economists, journalists, and policymakers.