If We Are in a Recession, Please Tell the Labor Market

Lots of talk that we are already in a recession because we’ll likely have two quarters of negative real GDP growth in Q1 and Q2. I don’t think people know what the word recession means.

First, two consecutive quarters of negative growth isn’t even a NECESSARY condition to have a recession. Please note in 2001 we had a recession but NO quarter had real negative growth.

Second, the labor market is just too hot still. Just to show you, here is a graph that shows the change in initial jobless claims from 8 weeks before the date the recession started to 6 months after. I plot exclude the COVID recession because the numbers are off the scale.

This year looks nothing like the last 3 recessions. Never do initial claims decline into a recession. In fact, we are back were we were 8 months ago.

Are things softer than 6 months ago? Absolutely. Is real GDP going to be negative? Absolutely. But this isn’t a recession in the official sense.

It also points to how crazy tight the labor market has been. If we are in a recession, the labor market is so strong it hasn’t shown it.

Job Recovery Stalled Out

Initial Jobless Claims were close to 850,000 again today. Here’s how that compares to the rest of the year.

While the number looks great compared to March, this number is till 200,000 higher than ANY week pre-Covid.

The job market may be deteriorating here as we see more permanent job losses and colder weather starts to impact some service businesses again.

Please also note it has been 29 weeks since the first huge surge in claims. Many initials are past 26 weeks (the usual limit) so continuing claims will be less informative about job market health going forward.