Jobs and Employment: How Much Recession Warning Can One Expect?

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