Sahm Rule recession indicator - Not at critical level but trend is higher

The Sahm Rule is a good recession indicator based on the simple calculation of the three-month moving average of the national unemployment rate U3 by .5 percent or more over the low of the last 12 months. Clearly, if the unemployment rate is falling, no recession. If the unemployment rate is rising relative a past low, it can be a signal for a recession. The number can get fairly high with the peak reaching at the end of the recession. The graph does not do justice to the key threshold of .5; nevertheless, the Sahm Rule will give a strong indication of a recession. This may not be a true early warning, but it provides a clear lowdown signal. The FRED database provides a real-time and adjusted Sahm Rule where the adjusted value accounts for revisions.

If we look at the last year, the indicator has moved from negative to positive and is showing a strong trend, yet it is not near the key .5 level. The trend directional change is correlated well with the market top.