U.S. Unemployment Rate And Recessions

Today's release of the U.S. employment situation by the Bureau of Labor Statistics revealed a bigger than expected jump in the widely watched Non-farm payroll report of 304,000 new jobs registered in January. Buried deep in the report was a significant downward revision of December's number by 90,000 (from 312,000 to 222,000). This is just a reminder that this monthly data can be subject to big swings and should likely not be considered as important as they are sometimes made out to be.

Nonetheless, what we watch more closely is the unemployment rate, which moved higher, to 4%. It was influenced, slightly, by the U.S. government shutdown. However, what is important, as I have pointed out many times in past blogs, is that the when 36 month moving average (gold line in the above chart) and the actual rate of unemployment (white line) intersect, it has historically signaled recession (blue area). The gap there has narrowed now to 0.3% as the unemployment rate has risen in both the December and January reports.

This is clearly the end of the economic expansion cycle that began in 2009 and we should all be prepared for slowing of economic growth on a global scale.

Normally, when the U.S Federal Reserve changes its bias from tightening monetary policy (raising interest rates) to easing monetary policy (lowering interest rates) there is about a six month lag to the beginning of a recession. The Fed has clearly changed its bias (as of this week). Synchronize your watches and keep an eye on the U.S. unemployment rate for the next couple of months. Caution rules.