I posted this post in mid-2017. I am reposting as the debate has risen recently whether a recession is near or not. it might be handy in 2019.
Original Post: Jobless claims figures have been a reliable indicator of recessions. By examining a historical chart that goes back to 1960s we see a similar pattern in the behavior of claims and recessions.
Every single recession the U.S. encountered in the underlying period was preceded by a rise in jobless claims. The chart above draws the quarterly jobless claims. The shaded areas are the periods of recession.
The quarters that the U.S. officially got into recession in all cases were preceded by multiple quarters of rising jobless claims, and in most cases these rises are consecutive.
For example, ahead of the 2008 great recession, jobless claims increased for three consecutive quarters. -2001 recession was preceded by 5 quarters of rising claims( latest 3 were consecutive) -1990-1991 recession was preceded by 8 quarters of rising claims (latest 3 were consecutive) -The earlier recessions have also had the same pattern.
Before any recession, we had a minimum of three quarters of rising jobless claims and in one case we had 8 quarters.
Having that in mind, it is highly unlikely that the U.S. will encounter an official recession soon(before 2019).
---------------------------------- 2019 Update:
We had the jobless claims rise in the past quarter, however, it remain low. In my opinion, we need at least two more quarters of jobless claims rising to start "seriously" considering a recession in 2020. Let's see how things develop the first 6 months of 2019.
it is an amazing pump !! The graph becomes straight line @Technician
ZoltanBalogh
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Nothing interesting yet...
ReallyMe
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I am counting to three. There will not be a "four"
Fearghal1982
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What are your thoughts on the outlook for 2019 2021- based on your analysis it would appear that 2008 - 2009 is exactly pointing to a 10 year cyclical recession (although we some more time). Regardless of Trump's policies this was going to happen anyhow. The only thing that I think might be at play- is delay. Trump through his generous tax cuts has allowed the corporate world to prepare for recession through repatriation of funds through tax cuts and then for these funds to be recycled back into stock market in the form of share buy backs (which will continue in 2019). The question I have is that although PE ratio's have improved cosmetically- has productivity increased? Has the feel good factor of 2017 & 2018 been a false dawn and would we already be in recession had it not been for these generous tax cuts? Sure PE ratio's have improved and employment market appears to be in relatively robust strength- however the real measure of quality employment is productivity. Sustainable employment can only be brought about through sustainable productivity IMO. I would be interested to Productivity over-layed. Great work on chart by the way- I really appreciate good analysis.
Technician
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@Fearghal1982, Than you for your feedback.
Yes, productivity has been at a very low average in the past decade. And that reflects the unusual economic growth era based on asset pumping by the fed. Here is a chart ibb.co/rFxC6ks Shiller PE ratio remains elevated as well.
As the fed has started tightening, the real position of the economy will be exposed!
Moraelin
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VERY interesting long term view, appreciate the work and thought you put into it and will keep it in the back of my head when evaluating market positions the coming year.
Technician
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@Moraelin, thank you, surely it would help.
Best of luck
you should look into the details as to WHO is getting employed in this last jobs report, check the age groups. Young people lost their jobs, the only increase is for people above 55 years old. These numbers are all fake and you shouldn't take them too seriously, they will effect the market in the short term. What you should be worried about is Quantitative Tightening and the debt defaults that will happen soon among other things like a government shutdown etc. Focus on the bigger picture. Good Luck
PS, I think the S&P bear market will continue soon and people will rush into safe havens such as gold and silver, unline 2008 this time the dollar will drop not go up =]