UPDATE—May 18, 2020: As of the employment data from April 2020, the Sahm Recession Indicator triggered on with a value of 4.0. This indicates that the April three-month average unemployment rate of 7.53 percent is 4.0 percentage points above its minimum value over the previous 12-month period. The three-month moving average of the unemployment rate in March 2020 prior to this trigger turning on was 3.83.

This may seem like a strange time to talk about recessions. GDP growth is strong, and as of April 2019, the unemployment rate stood at 3.6 percent, its lowest level since 1969. We are also experiencing an unusually long economic expansion. The Great Recession officially ended in June of 2009, with continuous private-sector job growth resuming in March 2010. This has resulted in the longest uninterrupted streak of job growth in recorded U.S. economic history.

While other measures of labor market health are not quite as sunny and averages do not always reflect the diverse labor market experiences of individuals or regions, the overall picture is one of a strong labor market. Yet, history tells us that good times never last, and both international tensions and various financial market indicators have recently caused some to worry. Inevitably another downturn will arrive, the consequences of which will be destructive for workers, firms, and governments. The length of this expansion raises urgent questions: when will it end, and will we see the next recession coming?

The most direct approaches to identifying recessions—waiting for the National Bureau of Economic Research (NBER) to announce a recession or waiting for GDP to decline over two consecutive quarters—are appropriate for historical analysis but are too slow to be useful for policy. For example, the NBER announced the Great Recession in December 2008, a full year after the recession had already started—far too late to initiate a timely monetary or fiscal policy response.

While proper planning and a timely response can mitigate the damage, these require real-time data measures that can accurately identify recessions. We believe that the unemployment rate is the most important such measure: rapid increases in it, regardless of its level, help us to quickly observe economic downturns. Of course, changes in the national unemployment rate do not tell us everything we might want to know about the health of labor markets. In particular, they do not capture the extent to which workers have left the labor force or are under-employed, both of which are important for understanding the degree of labor market slack. But increases in the unemployment rate can tell us about rapid deterioration of the labor market in close to real time.

In fact, as economist Claudia Sahm writes in a new Hamilton Project at Brookings and Washington Center for Equitable Growth book , if the unemployment rate (in the form of its three-month average) is at least 0.50 percentage points above its minimum from the previous 12 months, then the economy is already in a recession. (The use of the three-month moving average of the unemployment rate smooths out small jumps or dips that can be particularly misleading when using real-time data that policymakers have in the moment.) Sahm proposes using this indicator to trigger stimulus payments to individuals when the economy is in a recession. This approach is appropriate because, as the book discusses in detail and figure 1 below shows, the indicator has both correctly signaled a recession 4–5 months following the beginning of the recession and has virtually never called a recession incorrectly since 1970.