How Much Warning can we Expect Before the Next Recession?

Mish Shedlock |

Recession_Line.jpgWatching the Wrong Indicators

Many market watchers have had their eye on jobs and the unemployment rate to determine when the Fed will hike. But is this wise? Let's investigate the approach with actual data. Below, you'll find 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) 

Recessions_vs._Employment__in_Thousands__.jpg

Recessions vs. Jobs (in Thousands) 

Recessions_vs._Jobs__in_Thousands_.jpg

How Much Warning Can One Expect?

Clearly, the answer is 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 For Sixth 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.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Comments

Emerging Growth

MGX Minerals Inc.

MGX Minerals is a diversified Canadian mining company listed on the Canadian Securities Exchange. MGX is engaged in the acquisition and development of industrial mineral deposits in western Canada that…

Private Markets

Cross Campus

With over 500 members and operating 80,000 square feet by summer 2016, Cross Campus is one of the country’s top ten shared, collaborative office or "coworking" operators in the US.…

CF0005, LLC dba Mesa-Marshall #1-2

MESA Resources, Inc. ("MESA") is sponsoring the development of the oil & gas well completion project "Mesa-Marshall #1-2". MESA, founded in 1992, is engaged in the acquisition, exploration and development…