Labor is the engine of consumption and the most reliable lagging cycle indicator. The Sahm Rule marked every US recession since 1970 within a few months of its start, with one false positive in 2024. Five signals: unemployment level, the Sahm Rule trigger, initial claims, payroll growth, and wage growth.
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The Sahm Rule triggers when the 3-month moving average of the unemployment rate rises 0.5 percentage points above its trailing 12-month low. Real-time recession indicator with no false positives from 1970 to 2023; the July 2024 trigger was not followed by a recession.
Highest-frequency labor signal — weekly. The 4-week moving average smooths holiday/weather noise. Levels above 350K = stress; below 230K = full employment range. Direction matters more than level at any moment: a sustained climb of 30K+ over 6 weeks is a regime shift.
Payrolls 6m annualized growth captures the hiring pulse — sub-1% indicates contraction risk. Wage growth (Average Hourly Earnings YoY) is the bargaining-power gauge: above 4.5% = tight labor market; below 2.5% = slack. Wage growth lagging core CPI = real wages negative, a consumer-stress signal.