Labor Market flags U.S Recession on horizon

Labor data last week surprised to the upside and pointed to an improvement in hiring and by implication the labor market. However, our leading Labor Market Growth Index, which tracks various diversified aspects of the general U.S labor market, experienced a sharp drop for the data representing the end of  October 2013, to below the zero growth line. This is typically a signal for recession in 5-9 months time.

However, we normally smooth the raw monthly data to cater for spurious drops or rises that occur occasionally, as shown by the black line. We suspect we are witnessing such a spurious moment since the drop in the composite index was predominantly from the sharp rise in initial claims around the period of the temporary Federal government shutdown and also by a dramatic fall in the Employment-to-population ratio for October. We have already seen weekly unemployment claims drop dramatically since the last week in October and we suspect the same rebound to be witnessed in the employment-population ratio at the end of November. Thus, November is likely to show a far less alarming picture than October.

About RecessionALERT

Dwaine has a Bachelor of Science (BSc Hons) university degree majoring in computer science, math & statistics and is a full-time trader and investor. His passion for numbers and keen research & analytic ability has helped grow RecessionALERT into a company used by hundreds of hedge funds, brokerage firms and financial advisers around the world.


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