“Sahm Rule was right all along” as BLS revisions expose massive job losses

A closely watched recession indicator that rose to prominence in 2024 was “right all along”... not because it failed, but because the jobs data feeding into it was flawed.

That’s the takeaway from a recent note by analyst EndGame Macro, who argued that economist Claudia Sahm’s namesake rule remains 100% accurate going back to the 1970s and that the latest government revisions to employment data prove the point.

The Sahm Rule is a real-time measure that flags the start of a recession when the three-month average unemployment rate rises at least 0.5 percentage points above its 12-month low.

In 2023, the rule came close to triggering, though Sahm herself cautioned that pandemic-era distortions might be to blame. Strong headline payroll reports at the time seemed to support that view.

However, the Bureau of Labor Statistics (BLS) has since revised those numbers down. Between 2022 and 2025, more than 1.1 million jobs had been stripped out, as reported by InvestorsObserver.

The latest update came Tuesday, when the BLS cut job growth for the year through March 2025 by 911,000. ZeroHedge estimates that, in total, roughly 2 million jobs have been stripped from the record over the past three years.

This “wholesale rewrite” of history suggests the Sahm Rule likely would have triggered over the past two years, had the unemployment rate been calculated against more accurate job counts.

“If those missing millions of jobs had been reflected at the time, the unemployment rate would have been higher, the Sahm Rule would have ticked up, and the U.S. might already be shown as having tripped into recession,” EndGame Macro wrote.

“The Sahm Rule didn’t miss, the inputs did,” they added.

Morgan Stanley offers a silver lining

While the labor market has weakened in recent months, including revisions that erased June payrolls entirely — marking the first net job loss since the pandemic — Morgan Stanley analysts argue the trend signals a bottoming economy rather than a deepening downturn.

The bank’s strategists said they don’t expect another surge in joblessness or widespread losses unless the economy faces a fresh external shock, a risk they see as muted for now.

That view suggests the June revision “is the latest low point for the payrolls cycle,” with much of the weakness tied to President Trump’s “Liberation Day” tariff announcement in early April.

Supporting their case is the stock market’s V-shaped rebound since April — an unlikely development if the economy were sliding into recession.

Jobs data “are always late to the party, and by the time they confirm we are in a downturn, it’s typically after the equity market has figured it out,” the analysts noted.