The Unemployment Rate Is Not Signaling A Recession [Dow Jones Industrial Average(INDEXDJX:.DJI), SPDR S&P 500 ETF Trust]

recessionGeorg Vrba:  A reliable source for recession forecasting is the unemployment rate, which can provide signals for the beginnings and ends of recessions. The unemployment rate model (explained here), updated with the January figure of 6.6%, does not signal a recession now.

The model relies on four indicators to signal recessions:

  • A short 12-period and a long 60-period exponential moving average (EMA) of the unemployment rate (UER),
  • The 8-month smoothed annualized growth rate of the UER (UERg).
  • The 19-week rate of change of the UER.

The criteria for the model to signal the start of recessions are given in the original article and repeated in the Appendix.

Referring to the chart below, and looking at the end portion of it, one can see that none of the conditions for a recession start are currently present.

  • The UER is not forming a trough and its short EMA is well below its long EMA – the blue and red graphs, respectively, the spread being -0.55%.
  • UERg is currently at a low level, minus 13.4% – the green graph.
  • Also the 19-week rate of change of the UER is now at about minus 8.6%, far below the critical level of plus 8% – the black graph.

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For a recession signal, the short EMA of the UER would have to form a trough and then cross its long EMA to the upside.

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