U.S. Labor Market — Real-time Sahm Rule Recession Indicator: elevated plateau after the 2024 trigger, with renewed late-2025 firming
The Real-time Sahm Rule Recession Indicator is a monthly, labor-market-based gauge that summarizes how far the unemployment rate has moved away from its recent trough. It is constructed as the gap between the three-month moving average of the unemployment rate and the lowest three-month average observed over the prior 12 months, expressed in percentage points. By design, it is intended to identify recession-like labor-market deterioration early, while the real-time construction preserves the signal as it would have been observed at each point in time.
Recent dynamics
After remaining near zero or negative during 2022–2023, the indicator rose persistently through 2024 and reached recession-signal territory mid-year. It then eased from the peak but did not reset: late-2024 readings held in a moderately elevated band, consistent with a labor market that had cooled materially from peak tightness but was not rapidly deteriorating further.
In 2025, the pattern is best described as an elevated plateau with intermittent re-firming. Readings softened into mid-2025, but later moved back up toward the upper end of the post-2024 range, with late-2025 observations returning to the mid-to-high 0.3s and briefly approaching the low 0.4s. One monthly observation is absent in the late-2025 sequence, which warrants treating the end-of-year inflection as a signal of renewed pressure rather than a fully continuous acceleration.
Interpretation and economic signal
The key distinction in the current configuration is between level and momentum. The level remains elevated, implying that unemployment is still meaningfully above its recent-cycle trough and that labor-market slack has been absorbed rather than reversed. In practice, a sustained positive plateau indicates incomplete repair: even if month-to-month changes moderate, the indicator stays high when the unemployment rate fails to re-anchor at new lows over the rolling 12-month window.
Momentum, however, has been less one-directional since mid-2024. The retreat from the 2024 peak reduced the immediacy of an active recession-style slide, but the persistence of elevated readings—and the late-2025 re-firming—signals that cooling is not a closed chapter. The most informative inference at present is a late-cycle labor-market regime: softer than the tight conditions of 2022–2023, not yet demonstrating the compounding deterioration that characterizes a sustained downturn, but still vulnerable given the elevated baseline.
Conclusion
The Real-time Sahm Rule Recession Indicator remains elevated, consistent with an economy operating with more labor-market slack than in the prior tight-labor phase. After triggering in mid-2024, the indicator eased but settled into a persistently positive range through 2025, with evidence of renewed firming late in the year. The current signal is therefore not best characterized as normalization; it is stabilization at a weaker labor-market level, where the central monitoring question is whether late-2025 firming becomes persistent and cumulative or remains episodic within an elevated plateau.