US Unemployment and Recession
The latest data released this morning presented employment numbers (and wage growth) that were underwhelming, relative to expectations.
The chances of a Fed rate hike in 3 weeks has now likely diminished, a bit.
However, one of the key indicators that we are following on this blog and via our weekly client webinar is the relationship between the unemployment rate and the 3 year (36 month) moving average unemployment rate and how its convergence has historically been foretelling of the next recession:
After July's number, the convergence gap (36 month moving average vs. actual unemployment) stood at .09% = 5.8% - 4.9%
As of today's data, that convergence gap has narrowed by .4%: 5.4% (new 36 month moving average) - 4.9% (August unemployment rate = .05% convergence gap.
So the rapid narrowing of this gap, puts a US recession at about 3 months away (if it continues to narrow at this pace).
That also coincides with the timing of the US presidential election.
Will the Fed assist this process by creating a flatter yield curve on September 21 (by raising interest rates)?
That does make things interesting.
Historically, recessions are not good for stock markets.
Stay Tuned...
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