St. Louis Fed – No Recession

Yesterday I posted a Bloomberg video with Lakshman Acuthan saying the economy is in a recession and has been since the middle of 2012.  Today, a chart from the St. Louis Fed created by a University of Oregon professor (Go Ducks) showing no sign of a recession.  According to the professor, from his FAQs:

2. How should I interpret these probabilities as a recession signal?

Historically, three consecutive months of smoothed probabilities above 80% has been a reliable signal of the start of a new recession, while three consecutive months of smoothed probabilities below 20% has been a reliable signal of the start of a new expansion. For an analysis of the performance of the model for identifying new turning points in real time, see:

Chauvet, M. and J. Piger, “A Comparison of the Real-Time Performance of Business Cycle Dating Methods,” Journal of Business and Economic Statistics, 2008.

Here is the chart:

FRED Recession Indicator






Thanks to for the above, his post on the topic is here.

In another post at DShort by Greta Vrba titled The Unemployment Rate is Not Signaling a Recession, another chart is produced showing no signs of a recession:







Her commentary is as follows:

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 appendix A.

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.
UERg is currently at a low level, approximately minus 8% – the green graph.
Also the 19-week rate of change of the UER is now at about minus 2%, far below the critical level of plus 8% – the black graph.

Remember though, Lakshman did say that unemployment is NOT a forward indicator and to provide a bit of balance, not everyone thinks the employment report is full or rosiness. Mike Shedlock (you should know that I don’t agree with a lot of what he writes), also writing at Dshort had the following to say:

Economists were surprised by the massive “beat” in today’s reported job numbers. The unemployment rate dropped .2 to 7.7% and the economy allegedly added 236,000 jobs.

Is that what really happened? No not really.

According to the household survey (on which the unemployment rate is based) the economy added a healthy 170,000 jobs. However, a whopping 446,000 of those jobs were part-time jobs. Simply put, the economy shed 276,000 full-time jobs.

The BLS labeled those 446,000 part-time jobs as “voluntary”. I am not so sure.

His blog post “Spoiling The Great Employment News” is quite compelling for reasons other than signaling a recession.

Six and twelve months from now it will be interesting to see who was right, who was wrong and whether they were right for the right reasons or just lucky.

Scott Dauenhauer CFP, MSFP, AIF


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