Sunday, November 05, 2006

Employment and recessions

Listening to the news this morning, I heard several commentators note that things were bad for the Republicans, despite the economy being in good shape and unemployment very low. I won't repeat here all the evidence that the economy is not in great shape for middle- and lower-income Americans--that's it's being buoyed by record levels of debt, a frothy housing market, and Gilded Age tax policies for the wealthy. (Though if you'd like to read some of that, you might start here or here.) But I did want to highlight a chart from a recent post at Calculated Risk and its demonstration that low unemployment figures usually precede recessions:

They're not predictive indicators, as the post makes clear, merely coincident. But it's a striking chart, nonetheless, and certainly puts all the shouting about low unemployment in a different light.

In fact, as economists and Wall Street types have historically been very bad at predicting recessions, it is possible that we are in a recession already. Last quarter's GDP growth officially was an anemic 1.6%, but probably closer to 0%. If Q4 is as poor, and Q3 revised downward--ta-da! A recession.

Update: Finally found a couple things I wanted to include in the post earlier. First is a link to September 8, 2006 post by Nouriel Roubini, in which he notes that "in March 2001 in a survey 95% of US economic forecasters predicted that there would not be a recession in 2001; 95% of them! Too bad that the recession had already started exactly in March of that year!" Second is an April, 2000 paper (PDF) by Prakash Loungani of the IMF, which Dr. Roubini cites, that looked at economists' predictions of GDP growth from 1989 to 1998. It concludes that "the record of failure to predict recessions is virtually unblemished."


Rob said...

As the old story goes, John tells Joe: "the economy has created a lot of new jobs." And Joe responds, "Yeah, I got four of them."

The figures conservative commentators cite have no bearing on people's lives. Hyper inflation in healthcare is eroding the power of everyone's paycheck. Wage stagnation continues to linger. Individuals are absorbing more risk and receiving less benefits. The super rich are getting richer. It's time for a change.

christian_left said...

Interesting chart. It looks as though unemployment falls pretty slowly but steadily most of the time, except when a recession hits, when it spikes upwards. So the trick is to figure out when the next recession spike is going to hit. I'm guessing it will be closely related to, or maybe even triggered by, a rise in oil prices.

Ambivalent_Maybe said...

Nouriel Roubini forecast some months ago a severe recession starting in the first quarter of 2007. So far it looks like we're right on track.

My guess is that it won't be caused by oil prices, though. Those prices have already been way high without triggering a recession. The continuing deflation of the housing market is one thing to watch, but because most of the usual economic indicators--like the stock market and corporate profits--reflect a lot of pure speculation and financial manipulations not closely tied to production or payrolls, the real crash will come only when Wall Street and the media that covers it begins to wake up to reality. Then the bears will be running, and the press filled with stories about how bad the economy is. Most regular folks, of course, will have known that for some time.