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Are We in a Recession? Ask Claudia Sahm

Two of the biggest challenges of fighting a recession are knowing when you’re in one and deciding what to do next. Claudia Sahm has an answer for both, Kate Davidson reports.

  • When economic data weaken, it’s impossible to know in real time whether it’s a blip or something more prolonged. The official declaration usually comes a year or more after a recession starts.
  • Now, Ms. Sahm, a Federal Reserve economist, has come up with a simple rule based on movements in unemployment to rapidly determine when a recession is under way.
  • The formula: If the average of unemployment rate over three months rises a half-percentage point or more above its low over the previous year, the economy is in a recession.
  • The rule would have accurately called every recession since 1970 within two to four months of when it started.
  • In conjunction with that rule, Ms. Sahm has also proposed policies to immediately soften the downturn without the political hurdles that usually slow stimulus efforts.

 

News Source: The Asian Wall Street Journal, 4 November 2019.

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