Quantitative indices should provide a lot of information in a simple form that is easy to read. The Sahm Indicator or rule seems to present a nice picture on an economic slowdown that is easy to create and has gotten a lot of recent interest. It is just the 3-month moving average of unemployment minus the low of the last 12 months. If the number moves above .5, there is the expectation that there will a recession.
It was created by a former Fed economist to look for times when fiscal stimulus may be necessary; however, the question is whether this is a better than simple picture and whether this indicator has predictive power. It is pre-calculated in the St Louis FRED database. Of course, the standard of whether it can predict a recession based NBER dating is a fool's errand since the NBER dating comes well after a recession begins.
The Sahm Indicator can be compared with the 3-month moving average to show how translation of data can have a significant impact on visualization.
Looking at a difference can rough up the data at key points. A spike is very clear that labor markets are hitting a rough patch. Hat tip to Klement on Investing as to whether this has predictive power. It is not predictive as measured by classic NBER dating, but investors have to think in terms of a nowcast.
Labor markets are hard to employ as a leading indicator. Nevertheless, recasting data can be a form of private information that can be exploited, so data transformation should be a regular tool used by any global macro quant analyst.
It was created by a former Fed economist to look for times when fiscal stimulus may be necessary; however, the question is whether this is a better than simple picture and whether this indicator has predictive power. It is pre-calculated in the St Louis FRED database. Of course, the standard of whether it can predict a recession based NBER dating is a fool's errand since the NBER dating comes well after a recession begins.
The Sahm Indicator can be compared with the 3-month moving average to show how translation of data can have a significant impact on visualization.
Looking at a difference can rough up the data at key points. A spike is very clear that labor markets are hitting a rough patch. Hat tip to Klement on Investing as to whether this has predictive power. It is not predictive as measured by classic NBER dating, but investors have to think in terms of a nowcast.
Labor markets are hard to employ as a leading indicator. Nevertheless, recasting data can be a form of private information that can be exploited, so data transformation should be a regular tool used by any global macro quant analyst.
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