# Recession Indicators > Recession indicators like the yield curve, the Sahm rule and leading indices have warned of past downturns. Learn how each works, its record and its limits. Source: https://learn.tradelabsai.com/macro/recession-indicators/ Track: Economics and Macro · Level: Intermediate · Updated: 2026-10-03 Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice. Cite as: TradeLabs Learn, "Recession Indicators", https://learn.tradelabsai.com/macro/recession-indicators/ Recessions hurt stocks, credit and commodities, while usually helping high quality bonds. Because markets fall before recessions are officially declared, traders watch indicators that have historically warned of downturns in advance. No single signal is perfect: some give false alarms, others arrive late, and their reliability can change as the economy evolves. Using several indicators together gives a better picture than relying on one. ## Who declares US recessions? The National Bureau of Economic Research (NBER) Business Cycle Dating Committee defines a recession as a significant decline in economic activity spread across the economy, lasting more than a few months. It looks at employment, income, spending and production, and often announces start dates many months after the fact. The two negative GDP quarters rule of thumb is not the official definition. See [GDP](https://learn.tradelabsai.com/macro/gdp/). ## Key indicators | Indicator | Signal | Typical lead | Lesson | |---|---|---|---| | Yield curve inversion | 10 year yield below 3 month or 2 year yield | 6 to 24 months | [Yield Curves](https://learn.tradelabsai.com/bonds-credit/yield-curves/) | | Sahm rule | Unemployment rate's 3 month average rises 0.5 points above its 12 month low | Near the start | [Employment Data and Non-Farm Payrolls](https://learn.tradelabsai.com/macro/non-farm-payrolls/) | | Leading Economic Index (LEI) | Composite of 10 indicators falling over time | Several months | | | Initial jobless claims | Sustained rise in layoffs | A few months | [Employment Data and Non-Farm Payrolls](https://learn.tradelabsai.com/macro/non-farm-payrolls/) | | PMIs | Manufacturing and services below 50 and falling | A few months | [PMI](https://learn.tradelabsai.com/macro/pmi/) | | Credit spreads | High yield spreads widening sharply | Variable | [Credit Spreads](https://learn.tradelabsai.com/bonds-credit/credit-spreads/) | | Building permits and housing starts | Falling housing activity | Several months | | | Bank lending standards | Tightening in the Fed's loan officer survey | Several months | | ## The yield curve's record The 3 month to 10 year Treasury curve inverted before each US recession since the late 1960s. Economists at the Federal Reserve Bank of New York publish a recession probability model based on this spread. But the 2022 to 2024 inversion, the longest in decades, was not followed by a recession within the usual window, prompting debate about whether quantitative easing, pandemic distortions or strong household finances weakened the signal. ## The Sahm rule **Example: Calculating the Sahm rule** The unemployment rate's three month average was 3.6% at its lowest point in the past year. Over the latest three months, unemployment was 4.0%, 4.1% and 4.3%, an average of about 4.13%. The rise is 0.53 points, above the 0.5 threshold, so the Sahm rule triggers. In August 2024, the rule was triggered briefly, but its creator, Claudia Sahm, noted that rising labour supply from immigration might be distorting it, and a recession did not follow immediately. ## The Leading Economic Index The Conference Board's LEI combines indicators such as average weekly manufacturing hours, jobless claims, new orders, building permits, stock prices, the yield spread and consumer expectations. Sustained declines have preceded past recessions, but the LEI fell for an extended period in 2022 and 2023 without a recession, another example of a signal weakened by unusual conditions. ## Market based signals - **Stock market declines,** especially in cyclical sectors. - **Widening credit spreads.** - **Falling copper prices** and commodity weakness. See [Copper](https://learn.tradelabsai.com/commodities/copper/). - **Rapid Fed rate cut pricing** in futures markets. ## Using indicators sensibly 1. **Combine several signals** across different parts of the economy. 2. **Look at trends and breadth,** not single readings. 3. **Remember leads vary widely,** from months to years. 4. **Expect false positives,** especially after structural shocks. 5. **Watch markets themselves,** which often move before data. ## Frequently asked questions ### What is the most reliable recession indicator? The yield curve inversion has the longest track record, but it gave a long false signal in 2022 to 2024; combining it with labour market and credit indicators is more reliable. ### What is the Sahm rule? A signal that a recession has begun when the three month average unemployment rate rises 0.5 percentage points above its low of the previous 12 months. ### Who declares a recession in the US? The National Bureau of Economic Research, which considers a broad range of economic data and often announces dates well after a recession begins. Next, learn the most important price in finance in [Interest Rates](https://learn.tradelabsai.com/macro/interest-rates/). ## Continue learning - Next lesson: [Interest Rates](https://learn.tradelabsai.com/macro/interest-rates/) - Previous lesson: [Business and Economic Cycles](https://learn.tradelabsai.com/macro/business-and-economic-cycles/) - Related: [Business and Economic Cycles](https://learn.tradelabsai.com/macro/business-and-economic-cycles/): Economies move through expansions and contractions. Learn the phases of the business cycle, what drives them, how sectors and assets tend to behave and the limits. - Related: [Yield Curves](https://learn.tradelabsai.com/bonds-credit/yield-curves/): The yield curve plots bond yields across maturities. Learn normal, flat and inverted curves, what drives them and why inversions have signalled recessions. - Related: [Employment Data and Non-Farm Payrolls](https://learn.tradelabsai.com/macro/non-farm-payrolls/): The US jobs report includes non farm payrolls, unemployment and wage growth. Learn what each number means, release timing, revisions and how markets react. - Related: [Credit Spreads](https://learn.tradelabsai.com/bonds-credit/credit-spreads/): A credit spread is the extra yield a risky bond pays over a safe benchmark. Learn how spreads are measured, what drives them and what they signal about risk. - Related: [PMI](https://learn.tradelabsai.com/macro/pmi/): PMIs survey purchasing managers about business conditions, giving an early read on growth. Learn how ISM and S&P Global PMIs work, the 50 line and market reactions.