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.
