The Civilian Labor Force, Unemployment Claims And The Business Cycle - Monday, Feb. 8

A particularly interesting feature of this Unemployment Claims ratio series is its effectiveness in the past as a leading indicator for recession starts and a virtually dead-on coincident indicator for recession ends. In both of the ratio charts above, we've highlighted the value at the month a recession starts. In every instance, the trough in claims preceded the recession start by a few too many months, but the claims peaks were nearly identical with recession ends. Here is a table showing the actual numbers.

Claims to Recessions Table

The least lead time from a claims trough to a recession start was three months. That was for the second half of the double-dip that began in July 1981. As we've discussed elsewhere, this was basically a Fed engineered recession to break the back of inflation. The Effective Fed Funds Rate hit its historic monthly average high of 19.1% in June of 1981 and its all-time daily high of 22.4% on July 22, the month the NBER subsequently identified as the recession start.

The Business Cycle and Current Recession Risk

What does the ratio of unemployment claims tell us about where we are in the business cycle and our current recession risk? At present, the ratio for Continued Claims has been trending down. Excluding the 1981 recession, the Initial Claims trough lead time for a recession has ranged from 7 to 22 months with an average of 12 months if we include the 1981 recession and 14 months if we exclude it. Admittedly, the last recession is an extreme example, but the Initial Claims trough preceded its December 2007 onset by a whopping 22 months.

1 2
View single page >> |

Disclosure: None.

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.