US Unemployment Rates And Recessions

With an uptick in the unemployment rate in the U.S. last week, it brings us back to a chart that we have been monitoring off and on for some time now: that is the historical relationship between the current rate of unemployment and the 36 month (3 year) moving average. When the current rate (white) has crossed through the 36 month moving average (gold) in the past, it has signaled the beginning of a recession (blue).

As of the most recent data, the gap between these two lines is now 0.5%.

With the U.S. government shutdown an estimated 800,000 workers are out of work. About 400,000 of these will be counted as unemployed when the survey data for January are gathered if they are still unemployed on Saturday January 12th. A Wall Street Journal article today suggested that this could add 0.1 to 0.2% points to the unemployment rate when announced on February 1.

That could narrow the gap to only a few basis points. If the trend continues upward as economic slowing progresses we could be looking at the intersection of these two lines in a matter of a few months.

China has lowered GDP expectations. Germany, the largest of the Eurozone economies experienced negative Q3 GDP growth.  the UK is dealing with Brexit. Global growth is clearly slowing and tighter monetary policy is having its impact on the U.S. economy. Lower oil prices and higher Canadian interest rates are impacting the Canadian economy. The best unemployment numbers may be behind us.

The stock markets may have paused technically, after the volatility on Christmas and New Year's eves. At the moment it is a market for traders and gamblers. Investors can be patient. we think that there could be at least some 10% further downside (or perhaps more) for global stocks before the economic slowing / recession takes hold. Stock markets usually lead the economy by about 6 months or so. This will present opportunity.

As Paul stated at the end of his blog yesterday: " Bottom Line", we have a plan.