Watching the Wrong Things
Many market watchers have their eye on jobs and the unemployment rate as the determinant of when the Fed will hike.
Let’s investigate the wisdom of that approach with actual data.
I downloaded seasonally adjusted employment and jobs data for the last five recessions from the BLS. Because the recessions start in different months, use of seasonally adjusted data is mandatory for this exercise.
My focus is on jobs and employment in the period three months prior to the recession to three months after the recession.
I used the National Bureau of Economic Research (NBER) report on US Business Cycle Expansions and Contractions as the official arbiter as to when recessions begin.
Jobs are from the Establishment Survey. Employment is from the Household Survey. Results are similar.
Recessions vs. Employment (in Thousands)
| Recession Date | Employ -3 Months | Employ -2 Months | Employ -1 Months | Employ -0 Months | Employ +1 Months | Employ +2 Months | Employ +3 Months | Peak Employment |
|---|---|---|---|---|---|---|---|---|
| 1980-01 | 99,404 | 99,574 | 99,933 | 99,879 | 99,995 | 99,713 | 99,233 | 1 Month Later |
| 1981-07 | 101,056 | 101,048 | 100,298 | 100,693 | 100,689 | 100,064 | 100,378 | 1 Month Later |
| 1990-07 | 118,852 | 119,151 | 118,983 | 118,810 | 118,802 | 118,524 | 118,536 | 1 Month Prior |
| 2001-03 | 137,614 | 137,778 | 137,612 | 137,783 | 137,299 | 137,092 | 136,873 | Recession Start |
| 2007-12 | 146,244 | 145,946 | 146,595 | 146,273 | 146,378 | 146,156 | 146,086 | 1 Month Prior |
Recessions vs. Jobs (in Thousands)
| Recession Date | Jobs -3 Months | Jobs -2 Months | Jobs -1 Months | Jobs -0 Months | Jobs +1 Months | Jobs +2 Months | Jobs +3 Months | Peak Jobs |
|---|---|---|---|---|---|---|---|---|
| 1980-01 | 90,482 | 90,576 | 90,673 | 90,802 | 90,882 | 90,994 | 90,850 | 2 Months Later |
| 1981-07 | 91,283 | 91,293 | 91,490 | 91,602 | 91,566 | 91,479 | 91,380 | Recession Start |
| 1990-07 | 109,687 | 109,839 | 109,862 | 109,834 | 109,613 | 109,525 | 109,366 | 1 Month Prior |
| 2001-03 | 132,723 | 132,696 | 132,767 | 132,742 | 132,460 | 132,422 | 132,291 | 1 Month Prior |
| 2007-12 | 138,053 | 138,136 | 138,253 | 138,350 | 138,365 | 138,278 | 138,199 | 1 Month Later |
How Much Warning Can One Expect?
The answer is clearly none.
In the previous five recessions, jobs peaked two months after the start of the recession once, one month later once, one month prior twice, and once during the recession month.
In the previous five recessions, employment peaked one month after the start of the recession twice, one month prior twice, and once during the recession month.
The NBER says the last US recession started in December of 2007 and lasted until June of 2009. Let’s take a closer look at stats from that recession.
2007-2009 Recession Stats
- Jobs were higher three months after the recession started than two months before the recession started.
- Jobs were higher two months after the recession started than one month before.
- Employment was higher three months after the recession started than two months before.
- Employment was higher two months after the recession started than one month before.
In the last recession, jobs and employment did not provide a clear signal for months.
Negative Data Pours In
With the exceptions of jobs, most other data has been negative.
- Durable Goods: On March 25 Durable Goods Orders Unexpectedly Decline, Business Spending Declines 6th Month
- Retail Sales Declined Third Month: On March 12, the Commerce Department announced retail sales were down for the third consecutive month. Economists blamed the weather. I knocked that assessment in Weather Unexpectedly Much Worse Than Economists Previously Thought.
- Wholesale Trade: On March 10, the Commerce Department reported sales were down while inventories rose. I used that report to say “I Stick With My Recession Call“.
- Factory Orders: On March 5, US Factory Orders Unexpectedly Decline 6th Month.
Economists keep watching jobs, a lagging indicator, somehow convinced that jobs tell the story of what the Fed is about to do. Such a focus is complete silliness. When it’s clear that jobs have turned, the economy will likely be in recession.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com