Keep an eye on continuing claims as early recession indicator
Last year, continuing claims for unemployment insurance hit the lowest level since 1970. After a sharp uptick this year due to layoffs that mostly affected white collar tech workers, the absolute number remains strong relative to history, but is now above the lows of 1972–73, 1987–88, 2000, and 2018–2019.
An upward move this sharp usually accelerates and becomes recessionary, but I don't think we're past the point of no return yet. The Fed could stabilize the situation with a rate cut (although it just raised rates and shows no sign of wanting to cut), or Congress could possibly stabilize it with some kind of pro-growth reform bill (although currently it's engaged in debt-ceiling brinksmanship that might result in technical default). It's also possible that productivity gains due to rapid technological advances might offset the bad rate environment. Anecdotally, venture capital still seems willing to take risks despite the bad rate environment. (After getting laid off late last year, I just launched an AI startup with some angel investment, and many other laid off tech workers are doing the same.)
For gauging whether the jobless claims numbers are looking recessionary or not, I quite like Chris Moody's Ultimate Moving Average Multi-Timeframe indicator. This indicator has predicted 6 of the last 8 recessions—arriving a bit late to the other two—with only one false positive. (Of course, the definition of "recession" is a bit arbitrary. In general, this has been a good early signal that joblessness is accelerating—again, with only one false positive.) Note, however, that this is much better on the front end of a recession than the back end. You need a faster signal to let you know when the recession is over, because this one always calls it late.
Presently, this signal hasn't triggered yet. However, we're getting close. Often, claims accelerate because something in the financial system breaks. So keep an eye on headlines related to banks. I think the banks that have collapsed so far were unusually exposed, and most other regional banks don't look anywhere near as at-risk, so hopefully the collapses are over now. But if you see them pick up again, that's a bad sign, because it means liquidity has dried up to the point where it's affecting a much more stable tier of banks than the ones that fell first. I suspect the risk to pension funds has passed, because inflation has peaked and is going to continue coming down, so bonds should see some gains. I'm also watching for trouble with the major crypto exchanges and commercial real estate. (If more banks do collapse, it will probably be because of CRE.)
An upward move this sharp usually accelerates and becomes recessionary, but I don't think we're past the point of no return yet. The Fed could stabilize the situation with a rate cut (although it just raised rates and shows no sign of wanting to cut), or Congress could possibly stabilize it with some kind of pro-growth reform bill (although currently it's engaged in debt-ceiling brinksmanship that might result in technical default). It's also possible that productivity gains due to rapid technological advances might offset the bad rate environment. Anecdotally, venture capital still seems willing to take risks despite the bad rate environment. (After getting laid off late last year, I just launched an AI startup with some angel investment, and many other laid off tech workers are doing the same.)
For gauging whether the jobless claims numbers are looking recessionary or not, I quite like Chris Moody's Ultimate Moving Average Multi-Timeframe indicator. This indicator has predicted 6 of the last 8 recessions—arriving a bit late to the other two—with only one false positive. (Of course, the definition of "recession" is a bit arbitrary. In general, this has been a good early signal that joblessness is accelerating—again, with only one false positive.) Note, however, that this is much better on the front end of a recession than the back end. You need a faster signal to let you know when the recession is over, because this one always calls it late.
Presently, this signal hasn't triggered yet. However, we're getting close. Often, claims accelerate because something in the financial system breaks. So keep an eye on headlines related to banks. I think the banks that have collapsed so far were unusually exposed, and most other regional banks don't look anywhere near as at-risk, so hopefully the collapses are over now. But if you see them pick up again, that's a bad sign, because it means liquidity has dried up to the point where it's affecting a much more stable tier of banks than the ones that fell first. I suspect the risk to pension funds has passed, because inflation has peaked and is going to continue coming down, so bonds should see some gains. I'm also watching for trouble with the major crypto exchanges and commercial real estate. (If more banks do collapse, it will probably be because of CRE.)
I do think there's still the possibility to prevent the trend from accelerating. Economic indicators are all improving, including initial jobless claims, which tends to lead the continuing claims. As long as the Fed pivots toward easing, we should see the job market stabilize.