There’s no significant economic reports today, and even most of the high frequency indicators won’t start coming in for the week until tomorrow, so let me go a little more in depth in what the “quick and dirty” forecasting model suggests.

To repeat, this is a simple model consisting of the YoY% change in the stock market and the (negative) YoY% change in new jobless claims. Since the latter doesn’t signal recession until at very least it is 10% higher (worse) than the year before, I add 10 to the YoY% result.

Here’s the update through Friday:

(Click on image to enlarge)

Both signals are weak (+8.3% for the stock market and +2.8% for initial claims), but neither are signaling a recession.

For comparison, here is what they looked like for the five years before the pandemic:

(Click on image to enlarge)

At no point did it signal recession during those years.

To better show how it looked in comparison with the present situation, below I’ve subtracted -8.3% to stocks, and -2.8% to jobless claims, so that they show at the 0 line:

(Click on image to enlarge)

Stocks were much more volatile, and weaker than they are presently for much of that period, while jobless claims were only as weak as they are now for several weeks in September 2017 and December 2019.

FRED is no longer allowed to display stock prices from more than 10 years ago, but here is the long term historical record of the YoY% change in jobless claims normed to the current -7.2% level:

(Click on image to enlarge)

You can see that to be reliably recessionary, jobless claims must be worse than the are now. But on the other hand, there were only about a dozen occasions in the 50+ years before the pandemic where jobless claims were as weak as they are now without there being a recession. Again, this reinforces that the labor situation, while not recessionary, is weak.

Although it isn’t part of the quick and dirty forecast, nonfarm payrolls are one of the quintessential coincident indicators. While I won’t bother with the graph, on a YoY% basis they have grown 1.3% as of February. Adjusted for the census estimate of population growth, they are up only 0.6%.

And here is the long term historical graph of nonfarm payrolls for the 70 years before the pandemic, subtracting -1.3% and -0.6% respectively from the YoY values so that they show at the 0 line:

(Click on image to enlarge)

Aside from four occasions: briefly during the Korean War, once in the early 1960s, once in the mid 1990s, and during 2019, employment has never been weaker outside of recessions or shortly before.

Here is a close up showing the situation in 2019:

(Click on image to enlarge)

Back then I was writing that it was touch and go whether we would tip into recession or not.

The bottom line is that the employment side of the equation is very weak, and it won’t take much - say, the actual widespread implementation of retaliatory tariff barriers - to tip it onto the recessionary side. 

More By This Author:

Regional New Orders Deteriorate; Sales Still Lead Inventories
Jobless Claims Suggest Continued Sluggish Growth
Policy Uncertainty, Business Investment, And Consumer Spending