Devised by economist Claudia Sahm, the rule compares the latest three-month average of the unemployment rate with its lowest three-month average over the previous twelve months.
A rise of 0.5 points or more has marked the early months of every US recession since 1970. FinVolio applies a simpler version (latest three-month average against the 12-month low) to both Australia and the US and flags 0.3 points as softening.
Why it matters
Unemployment tends to rise slowly and then suddenly: once layoffs start, lower spending causes more layoffs. A modest early rise is therefore informative. The rule is a description of past patterns, not a law, and it has been triggered by labour-supply surges that were not recessions.
See the data: Australian unemployment, US unemployment.
General information, not advice.