Friday, January 25, 2008

We Are NOT In a Recession, Not EVEN Close

The chart above shows the number of new claims for unemployment benefits in the first month of the last four official recessions using data from the Department of Labor (claims) and the National Bureau of Economic Research (recession dates).

At the onset of each of the last four recessions (1980, 1981, 1990 and 2001), initial claims for unemployment benefits were above the average of 353,000 (from 1967), and in most cases, way above average. The two most recent reports of 301,000 claims (week ending January 19) and 302,000 claims (week ending January 12) suggest that the labor market is healthy and resilient, not weak and anemic.

Bottom Line: If there is going to be a recession in 2008, it definitely did NOT start this month. We are NOT in a recession.

Update: From a comment by Bill: "According to BLS employment data here are the percentages of initial UE claims as a percent of the seasonally-adjusted total civilian employment force for the dates noted":

Jan '80 -----> 0.42%
Jul '81 -----> 0.40%
Jul '90 -----> 0.29%
Mar '01 -----> 0.27%
Jan '08 -----> 0.19%

It's a good point to adjust for the increasing size of the labor force over time. Using the percentages above for previous recessions and the size of the current civilian labor force (about 154 million), we would have to see somewhere between 415,000 and 615,000 new claims for unemployment benefits before we would start to approach the levels of new claims at the onset of the last four recessions. At 301,000 claims, we are nowhere NEAR those levels. Not even close.

4 Comments:

At 1/25/2008 9:56 AM, Blogger Bill said...

I'll take this further because the data seem most relevant when expressed as initial UE claims as a percentage of the total labor force (employed plus unemployed).

According to BLS employment data here are the percentages of initial UE claims as a percent of the seasonally-adjusted total civilian employment force for the dates noted:

Jan '80 -----> 0.42%
Jul '81 -----> 0.40%
Jul '90 -----> 0.29%
Mar '01 -----> 0.27%
Jan '08 -----> 0.19%

 
At 1/25/2008 1:29 PM, Anonymous Anonymous said...

Doesn't this data also suggest that we could be in a recession right now?

Why are the percentages of initial UE claims as a percent of the seasonally-adjusted total civilian employment force decreasing for each recession?

Put the data on a chart and you'll see a clear trend occurring.

 
At 1/25/2008 2:26 PM, Blogger Bill said...

Anonymous:

Recessions vary in severity. The 1980 and 1982 recessions were extremely harsh as Fed Chair Paul Volcker wrenched double-digit inflation out of the monetary system.

Both the 1990 and 2001 recessions were short and shallow. The data reflect the severity of the onset of recession only.

The data simply indicate that job losses are minor right now. The only relevant follow-on to this examination is to ask how long those of the initial claimants who desire to find work remain unemployed.

If you see a sharp uptick in the initial claims as a percentage of the total labor force AND the length of unemployment begins to increase dramatically then a recession looks more likely.

The good professor is simply pointing out that right now the employment numbers do not point to an economic contraction.

 
At 1/25/2008 3:15 PM, Anonymous marmico said...

No false positives since 1950.

Job Data Passes Threshold Where Recessions Dwell

Yikes! We are in a recession.

 

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