A Perfect Recession Indicator

The NYT’s Floyd Norris notes that the 12-month change in private sector jobs is down 125,000 jobs from may 2007 to May 2008.

Since 1953, this indicator has a perfect record, identifying 9 out of 9 recessions. When it flips negative (year over year), the economy is already in recession each and every time:

• December 1953, the figure turned negative six months after the recession was later determined to have begun. (negative for 14 months).

• October 1957, it went negative three months after the recession began (negative  for 15 months).

• December 1960, the negative jobs figure came 9 months after the recession started (negative  for 10 months).

• July 1970, it turned negative 8 months after the recession began (negative  for 13 months).

• November 1974, the first negative number came a year into the recession. (negative for 14 months).

• June 1980, the recession was 6 months old when the negative number arrived. (negative  for just 6 months).

• January 1982, the negative number came 7 months after the recession started (negative  for 17 months).

• December 1990, the first negative number came 6 months into the recession (negative  for 17 months).

• June 2001, the recession was 4 months old. The job change number stayed negative for 30 months — the longest streak ever.

Caveat: These numbers are based on revised, not original reported data. So if the data somehow gets revised upwards, this recession signal will go away. But I agree with Norris that revisions are much more likely to make the data more negative, not less . . .


Jimmy P, put the hallucinogens away, and fire up Amazon: my preferred version of Blade Runner is the Five-Disc Ultimate Collector’s Edition . . .


Jobs Show Recession Is Here
Floyd Norris
NYT, June 6, 2008,  4:29 pm

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What's been said:

Discussions found on the web:
  1. Jim Haygood commented on Jun 8

    Another brick pried out of the Wall of Denial — thanks.

    Why did the indicator stay negative for a record 30 months during 2001-2003? Two hypotheses: (1) There was a second dip into recession during late 2002, which lasted into early 2003. This is apparent in several data series; most importantly, in stock indexes, which anomalously bottomed nearly a year after the recession allegedly ended in late 2001, and didn’t begin a sustained rally until March 2003. Such lagged stock market recovery never happened in any other recession. (2) Since the recession was tempered by asset inflation — particularly the housing Bubble — job growth could stay negative even as spending began to recover, thanks to the housing ATM.

    In any case, it’s futile to look for a bottom until the authorities capitulate. By that, I mean the president and the cabinet admitting flat out, “Yes, we’re in recession.” And Ben Bernanke admitting, “No, the credit crunch is not over, and I may be forced to slash rates again, though inflation will roar skyward like a Saturn V rocket.” I want to see the bitter tears in their eyes on prime-time television, as these functionaries rue the day they accepted the “mission impossible” of cleaning up Greenspan’s fouled nest. What did they ever do to deserve such a cruel fate?

  2. me commented on Jun 8

    Bush, who had never admitted ANY mistake will never admit we are in a recession. Further, if Bush doesn’t shed tears for the 4,000 he sent to their needless deaths in Iraq, he sure won’t cry because Joe Six Pack lost his job.

    And don’t be surprised if BB raises rates instead of cutting. Cutting only makes a horrible situation worse, especially since the rest of the world is enjoying Bush and the US get their comeuppance.

  3. BobC commented on Jun 8

    Yes, but seasonally adjusted, multiplied by the square root of negative one and weighted against a geometric progression series of optimally selected indicators, all is well.

  4. VennData commented on Jun 8

    How DARE you criticize the Occupant in Chief during a time of semi-economic hardship for all Americans… and during a time of Occupation.

    Bush feels our pain, he’s just to much of a man to let on – unlike you speculators who speculate on what people feel. Do you know how he feels? No. You’re a speculator and you’re artificially depressing Bush’s poll ratings. We need to look into you.

  5. BG commented on Jun 8

    Hey Jim,

    Using data series to predict an outcome only work when no exogeneous events poison the data.

    You can’t ignore an event such as 9/11 in your evaluation.

  6. mark commented on Jun 8

    No single indicator could be considered “perfect” in the sense you mean.

    Read Mlodinow’s “The Drunkard’s Walk” and you’ll know that because there are so many potential indicators, the likelihood of finding one that randomly has a pattern predicting all of the the recent recessions is likely to approach unity.

    The best one can hope to do is to develop a model to whatever degree of confidence one chooses (95% is the modern standard) that predicts recessions. Even then one assumes that the past can model the future.

  7. Paul Jones commented on Jun 8

    People are still talking cyclically. Folks, this is a time of epochal change akin to the move from hunter-gathering to animal husbandry and agriculture.

    The world and economy 40 years from now will be totally different. The winners will be those individuals and groups who go with the flow and not those who try to fight it.

    The big danger is how the losers will react. I advocate bribery on a biblical scale in order to pacify them.

  8. John Borchers commented on Jun 8

    I think they stalled the stock market just long enough to get us out of this.

    The economic stimulous timing couldn’t have been more perfect.

    The stock market is a consumer confidence indicator.

  9. Sam Jacob commented on Jun 8

    Oil is an essential commodity. When it’s price is stretched above the mean for a long time, the effects of that increase in the world economy will force an equal and opposite reaction in prices in the opposite direction.
    Inflation is rampant in India (8.5%).Chinese and Indian stock indexes are already close to breaking their prior lows.Aren’t those places where we have seen the biggest growth in oil consumption?

    News is always good at the top!

  10. Michael C commented on Jun 8

    Magazine cover indicator

    Newsweek June 16,2008


    Cover Story: Why the Economy is Worse than You Think

  11. mikkel commented on Jun 8


    While what you say is completely true, 9 out of 9 is pretty unlikely, especially since we are not in a recession much more than we are. If you want to be completely a stickler though, you could do joint probability with other gauges that have proven very accurate but maybe not 100%, and I think you’d get a p < 0.01. I'll go out on a limb and say the only possible way we're not in a recession is because the macro numbers (like inflation) are wrong, not that these tons of indicators are.

  12. SteveW commented on Jun 8

    An indicator like this should really be adjusted for population or workforce size which has more than doubled since this indicator started its successful run.

    Otherwise it will be increasingly susceptible to false positives. Will this be the first one? (Personally I think it’s unlikely we’ll avoid a recession)

  13. Mark E Hoffer commented on Jun 8

    Paul Jones makes an interesting comment..

    Similiarly, ‘non-linearity’ will be a well known word by the time this thing shakes out..

    We’d do well to remember that ‘stores’ are more than those places offering things, for sale, in exchange for Fiat/Scrip/Coupons/Rewards Points..

  14. HT commented on Jun 8

    Everyone is missing the real question. Since the market is a forward looking instrument discounting the value of future earnings etc., the REAL question is at what time does the market typically bottom? I’m certain it’s WITHIN a recession [retrospectively].

    BARRY, any data on this?


  15. Ravi Masand commented on Jun 8

    We have swept all evidence of an obvious recession under a rug weaved from lies about inflation. And we’ve been dancing on this now so-worn-out rug. However, the gathering storms of a darkening reality are about to turn out the lights, and despite managements’ best efforts, turn off the music and force us to confront its undeniable presence. Be afraid. Be very afraid.

  16. Bob A commented on Jun 8

    Whether it’s ‘recession’ or not seems such an arbitrary and irrelevant indicator.

    Shouldn’t we be measuring the health of the economy by how much lower growth is that what is generally accepted as desirable or normal or healthy or what was promised?

    Is +0.1% healthy and +0.1% not healthy?

    The economy sucks. And everybody knows it.

    Do we let scumbag politicians shirk responsibility because it’s +0.1% instead of -0.1% ?

  17. Estragon commented on Jun 8

    It’s worth noting that we’re talking about a period during which both the overall workforce and the participation rate have generally been in a secular rising trend. Note that the uptrend flattened a bit in the 1990’s, declined in the 2001 recession, and hasn’t really recovered.

    Cyclical declines in employment during a secular uptrend obviously point to significant weakness, hence the apparent “perfection” of negative job growth as a tell for recession.

    At some point demographic changes may cause this tell to mislead though. If participation rates have peaked, we may see an environment where involuntary unemployment stays low, imports level off or decrease, exports increase, and wages gain even as aggregate employment growth goes negative and domestic demand stagnates.

    If and when such an environment happens, I suspect it will come as a surprise to many.

  18. mikkel commented on Jun 8

    HT, yeah for the most part you’re right. But in order for it to have any chance at being a forward discounting mechanism, there has to be good information. A lot of what Barry points out is that the numbers are in no way reflective of reality on the ground, and hence the stock market is completely off base right now (you look at the projected increase in profits in the latter half of the year? It’s crazy).

    Moreover, if you believe that we are facing a solvency crisis, then the typical narrative is not applicable…so that’s the REAL question actually. I think saying it’s like moving from hunter-gatherer to husbandry is a bit of an overstatement. Just a tad.

  19. BobC commented on Jun 8

    I have to say that I really like this blog. It is one of the few places where dissenting viewpoints come with some supporting reasoning. Every time I read the posts I come away with plenty to think about.

  20. Our man in Helsinki commented on Jun 8

    Maybe this indicator has lost a little of it’s reliability because of the vast outsourching of labor to China and other countries, that many American companies have done in recent years. As a outcome of this process there are less workers in U.S. but more income from American companies overseas, i.e. less wages but more capital income.

  21. Ed H commented on Jun 8

    Unemployment claims are ringing that same recession bell that the unemployment number is ringing. My calculations show that for all data available (back to 1967), every recession has seen a net rise in average weekly jobless claims of +50,000 and of +350,000 in average continuing claims within a year’s time (see post).

    These claims numbers have no false positives either. As employment is a lagging indicator, it’s pretty likely we are already in recession.

  22. Wee R. Toaest commented on Jun 8

    “Recession? What Recession?”

    Jim Cramer, TheStreet.com, 6/5/2008 1:49PM EST

  23. Robert Ward commented on Jun 8

    Look at the dates. The “perfect” recession indicator is that there is a Republican President.

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