I would actually say that the unemployment rate is a lagging indicator. Since most people simply extrapolate trends of the recent past when making budgetary decisions - employment goes up at the end of a growth cycle.
Similarly, while employers generally try to hold out and not make job cuts while business is declining - however, at the end of the cycle (just before it begins to turn up again), employers finally throw in the towel and cut jobs.
That is why the unemployment rate accelerates to the upside toward the end of the recession.
US credit quality in 25-year retreat toward junk-S&P
Thu Nov 2, 2006 5:09 PM ET
NEW YORK, Nov 2 (Reuters) - U.S. corporate credit quality has been on a 25-year decline toward junk status, with almost half of all companies now rated below investment grade, Standard & Poor's said on Thursday.
Some strategists have cautioned that the slump in credit quality could end badly.
Given the present ratings mix, the default rate could exceed 15 percent, the highest since the Great Depression, if the economy goes into a recession, according to Martin Fridson, publisher of independent research service Leverage World.
Shareholder-friendly activity, such as share buybacks, restructurings and leveraged buyouts, have all increased debt burdens and lowered credit quality, S&P said.
High risk tolerance by investors has also attracted more speculative grade issuers to the bond market, the rating agency said.
This year, 61 percent of all newcomers to the bond market had ratings at the "B" level, a mid-level junk considered highly speculative. In fact, "B" is now the largest rating category, making up 27 percent of all issuers.
The investment-grade universe, meanwhile, is now dominated by financial institutions, "as mergers and acquisitions have created enormous financial entities with huge funding appetites," S&P said.
Unemployment falling might not presage a recession, but it seems that the rate rarely rises outstide of one. The question is which datum, unemployment or GDP is the first to register when one is already in a recession? Complicating this, is my assumtion that chart is made of the final revision data, not the stuff that we're getting now.
Despite all the increasing questions about the data a payroll report with 92K jobs is pretty scary. As are the last several months. A few weeks ago another commentator and I had an interesting exchange on the steady-state breakeven ranging from 130-175K jobs/month. Thereby allowing me to settle on continuing to use 150K as a figure of merit. If job creations isn't sustained above 150K, especially AFTER a downturn, then the economy won't kick over into organic, self-sustained growth. Which it didn't. Continued job growth below 150K indicates a downturning economy and also suggests that low unemployment is reflected in other displacements, e.g. those giving up the job search.
CR, no predictive value? and yet your graph has low unemployment preceding each recession on every occasion.
In fact, there is a point in formation of high employment after boom/mania that will be purged in recession.
Why does anyone give credence to these numbers? Anemic job growth and lower unenployment at the same time?
This is pre-election bullshit.
Same with the 1.6% GDP growth that is really 0.9%.
One interesting thing is how in the past two recessions the jobless rate peaked two years after the recession was "officially" over. Earlier recessions ended at the peak of job loss. It shows how bogus government numbers have become: There is no such thing as a "jobless recovery," just an economy that still is in recession.
cr whats your take on the new nar ad campain? Its called "It's a great time to buy or sell a home!". I'm wondering, are you int the buy or the sell camp? Since they are quoting Alan I'm personally in the "its better to buy" camp. You?
But I thought this time is different and that the housing-lead recession would BEGIN with a jobless spike? As to that graph, enlarging it shows the jobless rate increasing into recessions, not decreasing.
Oh, well. I guess that means all those funny graphs we keep updating on employment are of zero predictive value.
On another note -- I'm beginning to think that CR is secretly buying up tons of real estate while talking prices down on his blog. Once he is done buying he will turn bullish. CR you though I would nt see through it huh?
Lord's note reminds me of that dance with the bar (The Limbo) which may have become popular long before my back did.
Yes, how low can you go? Not very bloody much lower.
So as a predictor we'd say, not unless you are an expert Limboest, (or nailing the bar to the posts, or digging a trench under the bar, or shrinking to the size of an ant, or being aided by the most talented and seductive of Limbo dancers ever, or...).
And who more expert than Hank?
Notice too, how unemployment (kind of like home prices) is sticky on the downside. It grudgingly gives way and falls. But it makes sharp peaks when rising.
2Q of 2007 could be a very different environment than today, if the unemployment trend does reverse.
Notice too, how unemployment (kind of like home prices) is sticky on the downside. It grudgingly gives way and falls. But it makes sharp peaks when rising.
There is a 'capitulation' effect in recessions - employers hire gradually though out he whole recovry... and drive UE lower & lower quite slowly... then as things start getting bad again they sort of freeze like deer in the headlights... then once the decision is made to cut it's a slaughter.
Anyone who has worked in a factory or office supporting a factory during a recession knows what I mean. It isn't a person here a cubicle there kind of event - we are talking mass murder.
I remember calling on John Deere in the middle of the 1980s farm crisis. I was told Deere Waterloo cut from 17,000 down to 6,000 in just a few quarters... mass wave after mass wave of layoffs.
The by the end the contact I was calling on was doing the job previously done by a total of 17 other middle managers and himself... He said 'no matter, we aren't making anything anyway, what's to buy?'. He and one other person had a floor full of cubicles to themselves... like a giant empty maze.
Now THATS what I call a 'hard landing'.
I've heard similar stories from folks in IT... but in both of these cases (Ag in the 80s & IT in 2000) it was only one sector that got hit full bore, the rest of the economy fared better.
Hopefully the contagion associated with the residential RE slow down will also be similarly contained. This is the real story - not that RE is slowing but rather 'so what'?
I would actually say that the unemployment rate is a lagging indicator. Since most people simply extrapolate trends of the recent past when making budgetary decisions - employment goes up at the end of a growth cycle.
Similarly, while employers generally try to hold out and not make job cuts while business is declining - however, at the end of the cycle (just before it begins to turn up again), employers finally throw in the towel and cut jobs.
That is why the unemployment rate accelerates to the upside toward the end of the recession.
Yup UE rate spike IS the recession, not the cause of the recession.
Another one of those 'check engine light' warnings to alert you that the smoke ALREADY pouring out from under the hood is in fact a problem.
US credit quality in 25-year retreat toward junk-S&P
Thu Nov 2, 2006 5:09 PM ET
NEW YORK, Nov 2 (Reuters) - U.S. corporate credit quality has been on a 25-year decline toward junk status, with almost half of all companies now rated below investment grade, Standard & Poor's said on Thursday.
Some strategists have cautioned that the slump in credit quality could end badly.
Given the present ratings mix, the default rate could exceed 15 percent, the highest since the Great Depression, if the economy goes into a recession, according to Martin Fridson, publisher of independent research service Leverage World.
Shareholder-friendly activity, such as share buybacks, restructurings and leveraged buyouts, have all increased debt burdens and lowered credit quality, S&P said.
High risk tolerance by investors has also attracted more speculative grade issuers to the bond market, the rating agency said.
This year, 61 percent of all newcomers to the bond market had ratings at the "B" level, a mid-level junk considered highly speculative. In fact, "B" is now the largest rating category, making up 27 percent of all issuers.
The investment-grade universe, meanwhile, is now dominated by financial institutions, "as mergers and acquisitions have created enormous financial entities with huge funding appetites," S&P said.
Business & Financial News, Breaking US & International News | Reuters.com
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Unemployment falling might not presage a recession, but it seems that the rate rarely rises outstide of one. The question is which datum, unemployment or GDP is the first to register when one is already in a recession? Complicating this, is my assumtion that chart is made of the final revision data, not the stuff that we're getting now.
Despite all the increasing questions about the data a payroll report with 92K jobs is pretty scary. As are the last several months. A few weeks ago another commentator and I had an interesting exchange on the steady-state breakeven ranging from 130-175K jobs/month. Thereby allowing me to settle on continuing to use 150K as a figure of merit. If job creations isn't sustained above 150K, especially AFTER a downturn, then the economy won't kick over into organic, self-sustained growth. Which it didn't. Continued job growth below 150K indicates a downturning economy and also suggests that low unemployment is reflected in other displacements, e.g. those giving up the job search.
CR, no predictive value? and yet your graph has low unemployment preceding each recession on every occasion.
In fact, there is a point in formation of high employment after boom/mania that will be purged in recession.
SAM,
I am looking at the same graph: No rise right before. Predominately, the rise is during.
Why does anyone give credence to these numbers? Anemic job growth and lower unenployment at the same time?
This is pre-election bullshit.
Same with the 1.6% GDP growth that is really 0.9%.
One interesting thing is how in the past two recessions the jobless rate peaked two years after the recession was "officially" over. Earlier recessions ended at the peak of job loss. It shows how bogus government numbers have become: There is no such thing as a "jobless recovery," just an economy that still is in recession.
It may be predictive in that it is already very low and how much lower can it go before the Fed creates one in response, 4%, 3.5%?
cr whats your take on the new nar ad campain? Its called "It's a great time to buy or sell a home!". I'm wondering, are you int the buy or the sell camp? Since they are quoting Alan I'm personally in the "its better to buy" camp. You?
Since they are quoting Alan I'm personally in the "its better to buy" camp.
Good news for you - you'll have plenty to choose from.
But I thought this time is different and that the housing-lead recession would BEGIN with a jobless spike? As to that graph, enlarging it shows the jobless rate increasing into recessions, not decreasing.
Oh, well. I guess that means all those funny graphs we keep updating on employment are of zero predictive value.
Sharkbait, your handle may be more appropriate than you know. Got scuba gear and tons of shark repellant?
Wonderfully clear chart; keep up the good work!
Mp -- I swim with the sharks.
On another note -- I'm beginning to think that CR is secretly buying up tons of real estate while talking prices down on his blog. Once he is done buying he will turn bullish. CR you though I would nt see through it huh?
Lord's note reminds me of that dance with the bar (The Limbo) which may have become popular long before my back did.
Yes, how low can you go? Not very bloody much lower.
So as a predictor we'd say, not unless you are an expert Limboest, (or nailing the bar to the posts, or digging a trench under the bar, or shrinking to the size of an ant, or being aided by the most talented and seductive of Limbo dancers ever, or...).
And who more expert than Hank?
sharkbait, thanks for the laugh.
Best to all.
Notice too, how unemployment (kind of like home prices) is sticky on the downside. It grudgingly gives way and falls. But it makes sharp peaks when rising.
2Q of 2007 could be a very different environment than today, if the unemployment trend does reverse.
Notice too, how unemployment (kind of like home prices) is sticky on the downside. It grudgingly gives way and falls. But it makes sharp peaks when rising.
There is a 'capitulation' effect in recessions - employers hire gradually though out he whole recovry... and drive UE lower & lower quite slowly... then as things start getting bad again they sort of freeze like deer in the headlights... then once the decision is made to cut it's a slaughter.
Anyone who has worked in a factory or office supporting a factory during a recession knows what I mean. It isn't a person here a cubicle there kind of event - we are talking mass murder.
I remember calling on John Deere in the middle of the 1980s farm crisis. I was told Deere Waterloo cut from 17,000 down to 6,000 in just a few quarters... mass wave after mass wave of layoffs.
The by the end the contact I was calling on was doing the job previously done by a total of 17 other middle managers and himself... He said 'no matter, we aren't making anything anyway, what's to buy?'. He and one other person had a floor full of cubicles to themselves... like a giant empty maze.
Now THATS what I call a 'hard landing'.
I've heard similar stories from folks in IT... but in both of these cases (Ag in the 80s & IT in 2000) it was only one sector that got hit full bore, the rest of the economy fared better.
Hopefully the contagion associated with the residential RE slow down will also be similarly contained. This is the real story - not that RE is slowing but rather 'so what'?
Employment is a lagging indicator- and employment has probably peaked.
Most of the private sector hires late into the cycle- last hired, first to be fired.