The market is currently abuzz with news that Robert J. Gordon, longtime member of NBER's Business Cycle Dating Committee, has provided solid evidence supporting a tight link between the peak in initial claims and, dare we say it, the end of recessions.
Back on April 2, we sent this to our subscribers:
Here's a rare note of possible cheer: could the behavior of initial claims be signaling that an end to the labor market contraction is in the offing?
Graphed below is the yearly change in initial claims for unemployment insurance. Note that this measure typically peaks a little before the end of a recession. No surprise, perhaps. But what is a little surprising is how similar current behavior looks to earlier end-of-recession patterns.
And as the table below shows, the peak in claims growth occurs, on average, four months before the official NBER trough month, though the range is one to seven months. Note too that employment doesn't necessarily turn positive until a few months later, with the trough in yearly job growth typically coming five months after the peak in claims growth, and the trough in the employment level coming eight months after. In 1970s, yearly job growth hadn't picked up even a year after the peak in claims. But even then, the bottom was getting close.
| Months to Trough in Employment | Employment Growth, year-to-year | ||||||
| peak in claims, yty | cycle | level | growth | claims peak | year later | swing | |
| Dec 69-Nov 70 | Apr 70 | 7 | 7 | 7 | 1.8% | -0.4% | -2.3% |
| Nov 73-Mar 75 | Nov 74 | 4 | 5 | 7 | 0.4% | -0.7% | -1.2% |
| Jan 80-Jul 80 | May 80 | 2 | 2 | 2 | 0.7% | 1.0% | +0.3% |
| Jul 81-Nov 82 | May 82 | 6 | 7 | 5 | -1.3% | -0.5% | +0.8% |
| Jul 90-Mar 91 | Feb 91 | 1 | 3 | 3 | -0.6% | -0.4% | +0.2% |
| Mar 01-Nov 01 | Oct 01 | 1 | 22 | 4 | -0.7% | -0.7% | +0.0% |
| average | 4 | 8 | 5 | 0.1% | -0.3% | -0.4% | |
Since there's a good chance that the job market in this cycle will resemble the slow recovery after the 2001 recession, it could be 2011 before employment starts growing again. But if we think of this as a sort of leading indicator of a leading indicator, we could start seeing signs of the recession's end by mid-summer. We hope.
Isn't it more likely that the ripple effects of the GM bankruptcy and the Chrysler restructuring will cause a second dip to the recession?
Models are useful in understanding the economy, but it always pays to contextualize them.
Posted by: Charles | May 30, 2009 at 06:37 PM
The Center for Automotive Research has new forecasts out concerning the disruptions caused by these bankruptcies. GM and Chrysler sales constitute about 28% of the light-vehicle market, and bankruptcies are notoriously unpredictable.
CAR is suggesting that the best case scenario--filings and settlements wrapped up within 60 to 90 days--will result in losses of 63,200 jobs (direct, intermediate, and indirect) by the end of 2009, and another 179,400 by the end of 2010. Make that a loss of 1,344,000 by the end of 2009, and another 446,700 in 2010 in the worst case: a "disruptive, disorderly" bankruptcy that drags on.
Details here:
http://www.cargroup.org/pdfs/09_May_Research_Memorandum.pdf
Posted by: Philippa Dunne | June 02, 2009 at 09:23 AM