Economic Recession Might Start Soon If Unemployment Rate Keeps Rising


Economic Recession Might Start Soon If Unemployment Rate Keeps Rising

The joblessness rate has been an ideal indicator of recession, and it gives off an impression of being close to setting off that flag.

“It’s never been wrong. It’s something to watch,” said Joseph Lavorgna, boss financial specialist for the Americas at Natixis.

As indicated by Lavorgna, since 1948, the economy has dependably entered or been in a recession when the joblessness rate rises 50% points from its trailing repetitive low.

He said a recession happened in the 11 times paying little respect to joblessness rate. He indicated the case of a recession in 1953 when the joblessness rate rose to simply 3.1 percent, and in 1981 when the repeating low in the joblessness rate was high at 7.2 percent.

The joblessness rate, reported on Feb. 1, rose to 4 percent in January from 3.9 percent. It is at present 30 basis points over the low of 3.7 percent announced in November.

“The current rise is notable and would be troubling if it continues,” says Lavorgna. Nevertheless, he puts the danger of a recession at around 1 out of 3, and he expects the joblessness rate to head lower once more, not higher.

“The ongoing increment in the rate has been because of rising labor force participation, which is an indication of economic strength not weakness,” Lavorgna says. The joblessness rate has ascended for what financial specialists state is a valid justification — the long term jobless are coming back to the workforce and searching for jobs.

“For the most part, job growth is positive just before a recession,” said LaVorgna. Employment growth has averaged 240,000 during recent months.

Lavorgna said there are relieving factors that may make this cycle extraordinary. He said the Fed’s policy U-turn is vital because economic conditions have improved over the last month, making recession less possible.

In any case, he also says a few of the financial series that could flag the end of a cycle may have peaked including ISM, jobless claims and the yield curve.