A Perfect Recession Indicator
The NYT's Floyd Norris notes that the 12-month change in private sector jobs is down 125,000 jobs from may 2007 to May 2008.
Since 1953, this indicator has a perfect record, identifying 9 out of 9 recessions. When it flips negative (year over year), the economy is already in recession each and every time:
• December 1953, the figure turned negative six months after the recession was later determined to have begun. (negative for 14 months).
• October 1957, it went negative three months after the recession began (negative for 15 months).
• December 1960, the negative jobs figure came 9 months after the recession started (negative for 10 months).
• July 1970, it turned negative 8 months after the recession began (negative for 13 months).
• November 1974, the first negative number came a year into the recession. (negative for 14 months).
• June 1980, the recession was 6 months old when the negative number arrived. (negative for just 6 months).
• January 1982, the negative number came 7 months after the recession started (negative for 17 months).
• December 1990, the first negative number came 6 months into the recession (negative for 17 months).
• June 2001, the recession was 4 months old. The job change number stayed negative for 30 months -- the longest streak ever.
Caveat: These numbers are based on revised, not original reported data. So if the data somehow gets revised upwards, this recession signal will go away. But I agree with Norris that revisions are much more likely to make the data more negative, not less . . .
Jobs Show Recession Is Here
NYT, June 6, 2008, 4:29 pm
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Another brick pried out of the Wall of Denial -- thanks.
Why did the indicator stay negative for a record 30 months during 2001-2003? Two hypotheses: (1) There was a second dip into recession during late 2002, which lasted into early 2003. This is apparent in several data series; most importantly, in stock indexes, which anomalously bottomed nearly a year after the recession allegedly ended in late 2001, and didn't begin a sustained rally until March 2003. Such lagged stock market recovery never happened in any other recession. (2) Since the recession was tempered by asset inflation -- particularly the housing Bubble -- job growth could stay negative even as spending began to recover, thanks to the housing ATM.
In any case, it's futile to look for a bottom until the authorities capitulate. By that, I mean the president and the cabinet admitting flat out, "Yes, we're in recession." And Ben Bernanke admitting, "No, the credit crunch is not over, and I may be forced to slash rates again, though inflation will roar skyward like a Saturn V rocket." I want to see the bitter tears in their eyes on prime-time television, as these functionaries rue the day they accepted the "mission impossible" of cleaning up Greenspan's fouled nest. What did they ever do to deserve such a cruel fate?
Posted by: Jim Haygood | Jun 8, 2008 8:15:12 AM
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