A recession indicator based off rising unemployment triggered in July. Claudia Sahm, a former Fed economist, takes credit for an indicator she did not invent. Let’s discuss.
What is the McKelvey Recession Indicator?
Take the current value of the 3-month unemployment rate average, subtract the 12-month low, and if the difference is 0.30 percentage point or more, then a recession has started.
Edward McKelvey, a senior economist at Goldman Sachs, created the indicator.
Claudia Sahm, a former Federal Reserve and White House Economist, modified the indicator from 0.3 to 0.5.
Please consider The Sahm Rule: Step by Step written December 7, 2023 by Claudia Sahm.
I created the Sahm rule, and it’s on me to communicate it well. I try. If you have any questions, please add them to the comments.
Sahm claims to have invented the rule. However, credit should go to Edward McKelvey, at Goldman Sachs.
False Positives
To eliminate false positives, Sahm modified the original McKelvey rule from 0.3 to 0.5 but the result is a much larger lag time negating her claim of “real time”.
Sahm’s 0.5 trigger eliminates all but one false positive.
A trigger of 0.3 produces five false positives, albeit only one since 1964. If October of 2023 is false, that makes six false positives.
Using a trigger of 0.4 results in only two false positives with an average lag of ~1 month.
My Calculations vs Sahm
- Sahm takes the headline unemployment rate to one decimal place and then calculates a two-digit indicator. That’s mathematical silliness and I doubt it is what McKelvey did.
- I calculate the unemployment rate to three decimal places and round to two. For example, the reported unemployment rate for July is 4.3 percent but calculated to three decimal places is 4.253 percent.
- For July, Sahm calculates 0.53 and I calculate 0.49.
Discussion of Triggers
Based on a trigger of 0.3 percent, a recession triggered in October of 2023. I highly doubt that because the trigger inverted until April, a full 6 months later.
From October of 2023, McKelvey weakened to 0.21 percent in January 2024 and did not trigger again in April.
My preferred trigger is 0.4 percent, halfway between McKelvey and Sahm. That triggered in June.
A trigger of 0.4 percent rounded to a single decimal point does a better job of weeding out false positives without the lags of Sahm straight up.
Lead-Lag Times
Sahm labels “her” indicator as “real-time”. With lags as long as 7 month and never leading in the history of the data to 1948, there is nothing “real-time” about it.
A McKelvey indicator of 0.3 percent yields too many false positives.
A McKelvey indicator of 0.4 percent rounded to a single decimal point providers the best balance a well as a good average lead-lag time that averages to a 1-month lag.
On this basis, I estimate the recession started in May or June of 2024.
Recent Economic Data
July 8: Weak Data Says a Recession Has Already Started, Let’s Now Discuss When
I’ve seen enough. A recession has started. Let’s discuss starting with a very good indicator that has few false positives and no false negatives.
ADP Change in Employment
July 31: Small Business Employment Growth Is Now Negative (and What It Means)
ADP data shows year-over-year payroll growth is negative 88,000 for small corporations sized 20-49. Trends are negative in all but very large corporations.
Construction Spending
August 1: Commercial Construction Spending Is Down 9 Consecutive Months
It’s not office related. And the Census Department has heavy negative revisions to spending. Let’s investigate.
Commercial construction is a tiny component of construction spending but a mighty contributor to future jobs once completed.
Click on above link for the importance of commercial construction.
Unemployment Rate
August 2: Unemployment Rate Jumps, Jobs Rise Only 114,000 with More Negative Revisions
A rising unemployment rate, jumping by 0.2 percentage points in July, triggered a recession even by a much tighter calculation.
A recession has started.
I was asked “How can I be so cocky?”
Fair question. It’s more a matter of exasperation than cockiness.
I put up with a huge amount of dissent. Many comments here would get people booted immediately, and permanently from ZeroHedge.
But a comment about revisions (implying higher), when revisions have been negative all year was the breaking point.
I also meticulously laid out a case with hard data, not predictions, over the past 3-4 months, with constant negative revisions. I expect 700,000 to 1,000,000 negative revisions to jobs, also based on hard data, make that very hard data.
These monthly jobs reports are at best semi-hard data, and trending negative. Especially if one looks at hard ADP data.
ADP: https://mishtalk.com/economics/small-business-employment-growth-is-now-negative-and-what-it-means/
Construction spending is hard data and commercial is beyond bad to terrible, for those who bothered to read that link instead of pooh-poohing as some here want to do over nearly everything.
I have admittedly made many mistakes and I will make more. But with the past few months I am no longer projecting what I think, the data is confirming what I said would happen.
Anyway, I am glad there is so much dissent. If everyone agreed, we would probably all be wrong.
The government is determined to turn us into farm animals and government stats are designed to assist in that effort. Government stats scream dissimulation. Only the truth is more terrifying than watching government lie to you like you are a terrorist or the axis of evil. Anything anyone says about these lying government liars and their lies cannot move me from that unshakable conclusion.
So your comment on statistics coming from the federal government I shove it in the drawer along with the final report on the Kennedy assassination and the proof that Shamala is sane and evidence that Biden is more than an animated cadaver.
Blast me with your mighty lightning bolts or annihilate me with your indifference, I like your blog because sometimes there is something interesting and you make it easy to comment. For that I thank you, Headlock, and wish you good day.
I don’t understand why the government doesn’t take action to float all boats by accelerating the debt stampede and running up a cool trillion every 30 days…
Mish, more than 50 years ago, as a high school journalist I was taught to use the active voice when writing, for clarity’s sake, and to be as concise as possible. If one word will do, don’t use two or three, etc.
You write in an active voice too and you are usually concise. There are downsides to almost everything, and a downside of clear, concise writing style is that it tends to make it hard to convey uncertainty, and thus can signal more confidence than the writer might have, and even arrogance at times.
Add the habit (yours and mine) of not suffering fools gladly (as a boss once told me) and it’s easy to look like a prick. I try to soften it at times, but lifelong habits die hard. Given some of the foolish stuff in the comment section here, I think you do fine.
Being hard all the time … oh forget it! LOL
By fools you mean Jeff Green .. right…
Remember him – he’s the guy who buys used Teslas >>> as an investment strategy
hahahahahahahaha
Fine line between fool and idiot
I’ve come around to your perspective over the past month!
Today’s Employment report includes additional data which strongly support the Emerging Recession Hypothesis. The stall-out of Total Employment (Household Survey, percent change year-over-year) is quite predictive of recessions. See https://fred.stlouisfed.org/graph/?g=1radP
What further events or indicators people are looking for, that will provide further confirmation? Perhaps including…
Mike Shedlock, you got it. Flaunt it.
If this is a recession, then so be it. But I will call it the millenials’ recession since it is so weak like everything else millenials do and touch. Guessing they would commit suicide if it ever got to 2009 or 2001-2002 like recessions. Wake me when we actually get a recession that hurts all people.
You are entitled to call it an egg salad sandwich if you like
“B*tch”, my generation gets traumatized for breakfast!”
-Summer, as spoken to her grandfather in Rick and Morty.
I think you mean your generation gets traumatized OVER breakfast.
Offline, I have talked you up many times in your support of free speech in your comment section. As far as I can tell, you allow all on-topic points to remain, even with a diametrically opposing view, as long as the comment is trying to present a genuine truth seeking perspective in good faith.
No worries gasoline prices are low. That is it, people will keep on shopping when gas price drops.
Oh Wow – 2.5 million disabilities in the workforce the past two years!!!!
What could have caused this??????
link to oftwominds.com
I read this closely. Several times and t seems like a lot of this is:
Well if you do it this way you get this but if you do it another way you get that and it you modify it a tad you get this or that or maybe that or this. Depending on if you take the Kentucky Windage into account, or not.
Also….Yes, No, Maybe. The data seems really really murky at this point.
It’s like smelling smoke and thinking the house might be on fire or maybe someone is have a BBQ or the roast is burning in the oven.
Or it’s the house next door.
Seems like a lot of this is guessestamating. But no one wants to really say that out loud.
I think the problem is if you look a parts of the economy it isn’t bad, Down but not bad, Other parts are really really bad but are obscure and\or obscured from the general public. Also a lot of government aid makes it seem the economy is doing better than it really is. If you accept homeless people taking drugs and living on the street as the new normal then more of the same is just more of the same.
What’s the famous quote about how you goi bankrupt?: Slowly and then suddenly. Economists always are predicting the last recession. Remembering the past is easy. Remembering the future is harder.
No one really expected the Great Depression and no one expected it to last as long as it did. Economists are always expecting slowdowns, Recessions and Depressions are always “unexpected” WW I was unexpected. WW II was sort of expected but still everyone (including Hitler) was surprised it arrived when it do. Winter is coming but not one will tell you exactly when. They know the date on the calendar but the real winter? There will be a recession and\or depression. It’s coming and will be here sooner or later. When? People will always be surprised it arrive sooner than expected, or later than they expected. It will always be “unexpected” Krugman is probably still waiting for the Stockmarket to recover after Trump’s election.
Also no one expects the Spanish Inquisition.
WSJ reported that layoffs in June were lowest on record. Also, the quits rate is now very low. It is not surprising to see lower job creation numbers right now given where we are in the cycle. Job creation rate is still sufficient to absorb the new entrants to the workforce.
This is not a “collapsing” economy, not yet anyway. As you can see from the last chart in the article, the unemployment rate goes nearly vertical soon after a recession begins. If we see that then it would be a sure sign a recession began recently.
It’s not a collapsing economy, but it is not a good economy either. US household debt up with savings down. People working multiple jobs up. Car loan delinquency rates worst ever for low income people. House affordability worst in 40 years. Food affordability worst in 30 years. 401K hardship withdrawals up. Food pantry demand up.
The stock market has been up since the bottom in 2020, but the bottom 50% of US households own 0.6% of the stocks and the top 10% own 88.7% of the stocks so those gains are felt by the upper middle class and not the masses.
Lower quits routinely presages a recession. When jobs become more scarce people don’t quit the one they’ve got.
So we’re “technically” in a recession. So what? Calling it out is not going to change anything.
Here’s my prediction. Starting next year, Trump will turn it around. He’ll strengthen our economy by getting rid of regulations, stopping worthless Democrat spending and eliminating our dependence on foreign oil and on China and other enemies.
Trump was so great and perfect.
w.r.t. the economy, absolutely yes. Meanwhile, Biden and Harris have been terrible at everything, absolutely.
So why he and maga are soo weird? Something is double duty off about trump, people didn’t know it in 2016 but now Oh Boy. He rambles, praises Putin and other dictators, a felon and this list goes on. a big no way for the weird man and maga.
https://www.mauldineconomics.com/frontlinethoughts/the-hunger-games-the-fed-version#share Another perspective.
And this is why the GDP may stay positive. If so, then there is no recession.
She’s about a mover
She’s about a mover
She’s about a mover
She’s about a mover
Hey, hey, hey, hey
There ought to be revision indexes that track the revision percentile weather up or down. Today’s revision index is definitely tracking negative in reguard to economic health.
What used to work for decades might be defective today. Econ101 has to adjust.
1Y unemployment rate ma3 months : at the bottom [3.5 + 3.8 + 3.8]/3. At the top :
[4.0 + 4.1 + 4.3]/3 ==> 4.133 – 3.7 = 0,433. If the unemployment rate stays the same
in the next Qt : [4.1 + 4.3 + 4.3]/3 = 4.233 – [3.8 + 3.8 + 3.8]/3 = 4.333. In order to reach Sahm the unemployment rate has to rise above > 4.5%.
4.333 is a typo
Long, long ago in a land far, far away, the business cycle was a thing, wasn’t it? Economy heats up, overheats, cools down etc. Recession was a normal part of things. Has the business cycle really been defeated? Why would anyone want it defeated? Maybe in a hyper financialized economy, fragility has become institutionalized and is viewed as a great danger … by the managerial elite and dancing oligarchs?
The economy is highly leveraged…take away credit availability, and the balloon pops very quickly.
The Mossad hired Iranian secret service who planted explosive devices in several rooms where Ismail Haniyeh stayed. Two explosive devices in two other rooms failed to explode. These agents have been seen on the security cameras. They escaped. They are out of the country. A third agent pressed the button.
Are those covid shots and boosters killing people prematurely, or disabling them in the aftershocks. If correct, what will be its effect on the future unemployment rates.
If globalization is shrinking. If the US is pulling its high tech assets from China, Israel, the EU and Taiwan, what will be its effect on the future unemployment rates.
Add babies and Gen Z.
The progressive Claudia Sahm was trying to be more conservative than McK. Both might be wrong. The unemployment rate responded to a black swan. A plunge to (-)0.37 in Sept that followed an abnormal spike in June 2020. The system is defective. The current reading might be an eco on the radar, a ghost, as the yield curve inversion is. The Sahm indicator might osc higher, before a new plunge.
Yeah Mister Mish, the underlying employment data does not look positive.
Total employment now is virtually the same it was in July 2023 at 161,200,000
https://fred.stlouisfed.org/series/CE16OV
Labor participation is at 62.8% and same essentially has July 2023 and less than February 2020 (63.3%), and the labor rate has stayed the same mostly for the last 12 months.
https://fred.stlouisfed.org/series/CE16OV
google: insurance company executives all cause mortality
Do it. I dare you to do it.
One insurance company executive estimated that death rates are currently up 40 percent over what they were pre-pandemic. As the pandemic …
https://www.google.com/search?q=insurance+company+executives+all+cause+mortality
DTM = do the math
That was like 2 years ago. Mortality rates have normalized since then. It’s ok to live again. Just try to avoid experimental medical treatments including bogus vaccines and anything “gender” oriented. Human bodies are meant to be organic, not consumers of healthcare products except in emergencies.
And further exacerbating the problem is the fact that a lot of these jobs that were ‘created’ are on the back of people disabled and killed by the covid vaccines.
So the report would be far worse if we stripped those out
When we were looking for a rental years ago, we responded to an ad within hours of its posting. We drove to see the it the next day. It was located in an upscale neighborhood. There was a couple who were being shown the house before us. They needed a day to think about it. After we saw the house, we signed the lease. The next person showed up to see the house, but we already signed the lease and the check.
In contrast, we gave our landlord 60 day’s notice that we would not renew our lease because I was relocating for a new job. We have been out of the house for a month and the only nibble the landlord has had was a local family whose house burned down and needs to rent for 7-8 months. He doesn’t want to rent to them because it’s shorter than a year.
The economy certainly has changed.
BTW, I think the issue of people needing to work again is a good thing. It is a good thing when you can’t get away with doing nothing. The economy will correct itself but you can’t expect to get a job for the sake of needing a job. You actually have to learn skills that are valued in the productivity growth portion of the economy, which has been shrinking since 2000 because of globalization. At the end of the day, people may not like to hear it, but is is a global economy and global labor force. Trying protectionism for the masses simply won’t work. Many Americans think they have a right to a certain lifestyle such as owning a home and a car but as we’ve seen lesser people are able to afford those things. People need to make a better plan for their future and be nimble if they want to compete and survive. I guess we could all become real estate investors but that will just make the problems worse. Government has incentivized investors over productive labor since the 1980s and this is why more people are going into the nonproductive FIRE economy. Good thing America has an abundance of talented labor that keeps wanting to come here. Without them, our lifestyle would have been toast years ago..
The way I see it, if you got paid, but you didn’t build, mine or grow anything “new” into existence, then the dollars you get to spend are almost purely inflationary. We’ve gone way too long with too many people spending dollars that didn’t actually add actual value to the nation. Some common examples would be real estate agent and stock trader. Money in hand, nothing of value actually added to society.
Exogenous causes sent the market down. The US beefed up its navy to protect Israel. Ismail Haniyeh revenge might be delayed, or be symbolic, until The US and the IDF will be tired of being on high alert for a long time. Meanwhile the Ayatollah might cool down in to avoid similar results : 350 ballistic missiles and drones launched vs 6 hits. Bibi might negotiate a ceasefire with Hamas, signing a deal after a few months, bc Bibi have reached all his targets : assassinating Hamas top leaders and dismantling their forces. Ismail Haniyeh might become a holyman as Ali who sacrificed his life in 656, or his son who was assassinated in 680 in Karbala.
Really, you think THAT is “Bibi’s goal”? It’s an ancient turf war, not that hard to understand.
The missiles that were intended to get through were the missiles that did. Next time Iran won’t give the US/Israel three days’ notice.
FWIW, my industry underwent a recession in 2022 and 2023 with layoffs galore and huge drops in demand. We are in information storage and demand dropped like a rock in 2022 and 2023 only to return with a vengeance in 2024. For FY24 (July 2023 to June 2024), we ended with 138% higher than the plan. While Intel may be suffering, it is b/c of bad strategic decisions over time and losing their competitive advantage. Semiconductors overall are not in a recession and in a much better place than 2022 and 2023.
That’s probably mostly Pornhub.
No. It was mostly a change in the way storage operated during Covid and companies were scared supply chains would go dead so they bought up everything. Think of the toilet paper effect but on computer chips. We needed a recession in most industries so lower prices and costs and reduce demand in order to fix supply chains.
I sold all my individual tech stocks two weeks ago. Good luck to the other who are now a day late and dollar short to the exit.
It’s kinda exciting to watch the final stages of the GFC play out… knowing that they have run out of road …. they cannot reduce interest rates without setting in motion hyperinflation … they cannot increase rates to tamp down services inflation ….
We’ve got inflation – deflation – and stagnation all building into one massive motherf789er of a crescendo….
And total collapse on the horizon.
There is a reason they tried to inject every single human with that experimental death shot…
They are going to wipe us out to prevent The Gates of Hell from opening
https://fasteddynz.substack.com/p/the-ultimate-extinction-plan-uep
Have to agree with your assessment
People are asking how deep will a downturn be?
That question is one of perspective.
Downturns come to an end when the new generation/new blood brings ability and desire to rejuvenate.
What the economy is facing is the new generation has gotten accustomed to living with less and paying more for less. They place few demands upon Life and that is a Big missing element.
What is coming in my view is more then just an economic slump it is a Cultural slump where good enough to get by is A.OK
A little hunger in ones Life is a strong motivator and that only comes from Living a deep downturn.
Positioning for a deeper then anticipated event which is now underway is considered being defensive. What gives me this notion a person may ask?
It is a simple observation that what is being foisted on John Q. Public as Presidential level thinking in a candidate such as Harris or Biden without raising little to no opposition demonstrates just how far lower expectations have become normalized.
Good enough to get by mindset does not bring about Lofty levels of achievement.
Nor does it inspire people to go beyond themselves and test what they are made of.
Added: People should take a look at USD/JPY and what happened in July to that chart.
It looks much like what happened in 2008.
To attribute this kind of move strictly to revaluations based upon Central Bank policy differences between Fed and BOJ is quite a stretch in my view.
Something fairly Big Time is occurring real time.
USD/JPY was pushing above 161.00 July 8. Today closed 148.53
Sorry my bad 146.53 close.
My concern is they’ll add to the debt and increase debt to GDP ratio and we’ll see debt service continue to be larger than the Pentagon budget.
What you describe is what has been put on auto pilot for the last several financial screw ups. Bailouts of everything.
So am concerned as you are if they step up once again to pull the old sleight of hand.
There is also an alternative thought that Fed is acting now to shore up USD status as reserve currency which if it gets lost, Federal deficits are going to matter a whole Lot. The Global geopolitical storm which is upon us is more important than making Life easier for those soon to be impacted by job Loss.
USD losing primary reserve status is the High card which can not get squandered. That would put the Fed out of Business.
Powell was aware of employment numbers before he spoke is most likely.
That he shrugged off the questions about what is really happening and choose to effectively Talk up USD, and duration of Fed being tightest CB of any major currency across the Globe supports the alternative viewpoint.
I think it has the edge that Powell is willing to risk fallout from unemployment rising to keep Reserve status for USD in place,
As am short Yen carry it is tempting to take most off the table and call it a day.
However given Fed track record am inclined to let things ride and go for what should turn into a large Risk off event before the money printers get turned back on.
I have mentioned in prior posts my belief that this is a political economy.
Geopolitics is at play here and is a bigger issue in my not so very humble opinion, then domestic concerns over unemployment and a weakening economy. Fed has to show world that US can take some heat. Since it won’t be coming out of anyone who works at Feds pocket, the private economy gets to be bag holder once again.
Until time passes or events change this is as good a current summation of this situation i can come up with.
[1M] SPX looks a little bit tired on DM #9. It entered [1D] BB: May 16/17, 5,325.49/5,283.59, but closed above. It might backup 2022 high @4,818.62 for a sling shot up to the : 1929 high to Mar 2000 close resistance line, or reach/ breach Oct 2022 low. If this case we are in recession since June high. Rate cuts premature.
It’s crunch time per my anecdotal conversations and incoming emails. I’ve had recent conversations with realtors, contractors, flooring & furniture sales managers. They are all reporting slow traffic and slow sales. I am being inundated from previously online-sales websites with big discounts. They are obviously looking to drive traffic and hopefully subsequent sales. Home sales in Central Florida have slacked off. Astute real-estate investors are culling their properties. They wouldn’t be doing this if they didn’t sense a downturn in property values. Possibly the kicking-of-the-can has finally come to a brick wall? Time will tell.
China was at least partially credited with “getting us out of the GFC”. China was also partially credited with “preventing the 2015/2016 recession”. But now that their property bubble is bursting and hard…Oh, well you see Communist China is an island unto itself. Anyone else have their doubts about that very convenient line of reasoning?
The big question is when will all this “slowness” finally start being reflected in a meaningful drop in home prices? Housing inventory in Tampa, Orlando, and Jacksonville is up huge this year but so far very little to no effect on prices.
I know everyone here likes to look deeper at the economic reports to find reasons why they might not be as bad as they look (lmao). So here it is: more than half the rise in the unemployment rate is due to the increase in the participation rate. Maybe people are finding it harder to live off doing nothing these days. Secondly, wage growth was just 0.2%, less that the expected 0.3%. That’s sort of a Goldilocks number, high enough that real wages are increasing but low enough to not outpace productivity. Can I get 25 thumbs down?
why the lmoa? if you have an opinion just state it without nervous chuckling. Participation rate increasing is GOOD. that means more workers, better for business, better for people who gave up but changed their minds and are now in the economy. Even if it pulls the unemployment rate who cares? more workers is good
You’re obviously new here. Nobody here ever looks for positive economic news. It’s 99% permabear.
Have to agree. what’s the joke about the number of recessions predicted vs actually happen.
Positive news is normal and expected. Investors need to be alert for the negative news that destroys portfolios
The participation rate has not materially changed.
The household survey should pick up the black market. In any case, the increase in UE this year has not occurred in isolation. A long list of other econometric indicators are weak.
“a recession indicator… triggered” Mish lets see real layoffs. lets see reduction in cooperate borrowing. let’s see real debt stress with consumers in numbers. It aint there. this is more wishful thinking
Intel axed 15000 positions AND halted its dividend. Intel decided to “borrow” from shareholders instead of going to a bank.
Intel is not a good company and has been declining for over 2 decades.
The fact that Intel may or may not be a good company is irrelevant if you had a decent paying job with them. Many employees supporting their families will now be in the unemployment line. Sure, some will find jobs immediately, others not so fast. Then there is the trickle down effect in the communities that have Intel operations. Less sales down the line as everybody tightens their belts to weather the storm of a massive layoff.
INTC most layoffs might be overseas.
More likely, layoffs in the US, hiring overseas.
Intel will do what they always do. Ask more older people to take early packages and get a tax writeoff. Then H1B hiring will continue. But Intel is devoid of real leadership anymore. This isn’t the Intel of the 1970s or 1980s that Andy Grove built. Intel investors should be asking the question if the leadership is the right one or whether maybe they should breakup the company and sell off the valuable parts and shutter the rest and go into bankruptcy protection. Intel will continue to lose business to larger companies like Apple who make their own chips. Intel always was considered the innovator but those days are long gone. They haven’t produced anything organically great in decades and resort to acquisitions which they don’t manage properly. Intel reminds of generations of American companies that rests on their laurels but eventually fails b/c they no longer have a culture.
intels biggest problem is lack of imagination. microsoft was in a similar funk but turned their business around by spanning into new markets. TSMC is the new boss in town. Intel can’t compete with Chines ingenuity
Last layoffs number (June) was lowest in history (per a WSJ article I read yesterday). This plus the fact that the quits rate has come down huge explains why less new open job postings.
We shall see! Mr. Market is sure unhappy today!
My strategy will be to do nothing, and to go for mountain bike rides every day. Oh, and drink hoppy beer.
1) So, rate cut in 3, 2, 1, soon?
2) Or planned meeting in September?
3) Wait a couple more down-market days and PPT will get activated
I doubt intermeeting because it would make them look stupid.
I told Adam Taggart yesterday in recorded video 50 basis points in September.
Why do they schedule the meetings when they do? It would make more sense to meet next week, when they have both the latest inflation and the very latest employment statistics.
And/or, are they any better at the “root causes” of inflation than Kamala Harris is at the “root causes” of migration?
Meetings are scheduled a year in advance. 8 times a year
Jan, Mar, May, Jun, Jul, Sep, Nov, Dec
Recessions and other events don’t read the Fed’s Schedule
Adam does excellent interviews, worthy of attention. Good choice.
McKelvey in October 2023 might not have been wrong. Total Employment (Household Survey) peaked in November 2023.
Total Employment has been attempting a “permanently high plateau”, but is nevertheless down ~600K since November 2023.
Total Employment is now around 2,000,000 below its typical growth trend, which is consistent with a recession. The observed employment peak and plateau is consistent with the early stages of all but 2 prior recessions since 1948. (In 1973, employment still gradually rose as recession began; in 2020 employment dropped immediately due to COVID shutdowns.)
Job quality is also deteriorating – “part-time for economic reasons” is rising, and the year-over-year chart pattern also matches “start of prior recessions”.
Given the plateau in employment, it will be very difficult to mark the precise start of the presumed recession until all the other data revisions are in. It’s even possible that there might be an unexpected surge in employment (e.g. if war breaks out).
But I’m going to go out on a limb and suggest that recession is starting to be recognized by the markets and the S&P500 is already past its cycle peak.
Chart for those who want quant: https://fred.stlouisfed.org/graph/fredgraph.png?g=1rac8
Mish, what do you think this recession will look like? A while back you indicated that you thought the recession would be shallow and long with a modest rise in unemployment. Is that still your base case?
Yes, this will not be another Great Recession or Covid recession in terms of unemployment – The opposite of Covid
If you ‘subtract’ Covid (as an exogenous shock) from the unemployment rate, you have a typical business cycle peaking out at the start of 2020. In other words, Covid delayed what was already building, and the deluge of cash from Uncle Sam made what will now happen substantially worse.
Yup, ‘in the shitter’ is apropos.
Questions:
How long before Wall Street implodes? One bad day —> what’s next, Mr. Powell?
Will gold sparkle once FOCO sets in? (fear of crapping out)
This is correct. We should have had a mild cycle recession in 2020. Instead we goosed things to the moon and everyone thought they were flush and there was no creative desctruction. Now we have another cycle’s distortions (2020-2025) added on to deal with. This will be deep.
Thank you. And that’s why I’ll never believe in the very convenient timing of the Miracle Microbe that killed so many birds with one stone.
And the negative “wealth effect” will pile on the layoffs … the 2-3%er’s are feeling poorer with SP500 now down 6% from peak today.
This was hardly a bee-sting in the big picture. Barely visible on long term charts.
I think that the Misery Index is a great beginning and ending point.
“How do you calculate the misery index?
The Misery Index is defined as the sum of current, seasonally adjusted unemployment plus the current inflation rate (MI = U + I). So, for example, if the current unemployment rate is 4.7% and the current inflation rate is 2.3%, the economy will have a Misery Index of 7.0.”
Ref GOOG search.
NOW, we can plug in the REAL INFLATION RATE which is easily north of 12% and the misery is obvious to me.
What do you think, Mish. Should you create the “MISH MISERY INDEX” using SHADOWSTATS?
https://www.shadowstats.com/alternate_data/inflation-charts
I do not have access, but the inflation rate should be the UNCOOKED version, and that means that the bullshits ends and at LEAST SOMEONE calls them out.
Mish, I do understand that for the purposes of his blog, you HAVE to use the mainstream approach to the numbers but we could have our OWN and that would at least give some of us comfort that not everything has gone haywire!
The NEW MISH MISERY INDEX WILL BE KNOW AS THE “MMI RULE” as created by you, Mish. I do not have access to the data or the knowledge as to how to UN-MANIPULATE these Government shouted numbers.
Shadowstats is even more wrong than CPI-U.
Shadowstats is simply bizarre. According to him we are in perpetual recession. It’s ridiculous.
Mish, I see that U6 rose by 0.4% vs U3 up by 0.2%. U6 was flat in Q2, but took a big jump in July. I am thinking that this suggests that jobs are suddenly much harder to find. What do you think?
By the way, the only reason that I am waiting for the August report before coming to a definite view that we are entering SHTF territory is that, when I care a lot abut something, I become more analytically conservative and check harder for reasons to be incorrect. That said, this seems ominous.
Definitely jobs harder to find. I think we see a spike in continuing claims within 2 weeks
That is my gut feel. I think the job situation is rapidly getting worse in general, with the proviso that this is a big country with many exceptions and anomalies. There will be many contradictory anecdotes in the next several months; it will be a time to pay at least as much attention to the music as to the notes.
Thus, I am highly aware that my gut feel +$5 buys a viciously overpriced iced grande cold brew at the Starbucks about 10 miles away from our 20 acres. I am highly reluctant to commit to a forecast unless there is a lot of history and/or data behind it.
That said, I think the slope has steepened quite a bit in the last month or two. The August Us will be a real confirmation point to me, with the early claims numbers being a strong indicator. Thanks again for your superb bird-dogging of the numbers. It has been highly informative. This is the sort of thing that the NYT and WSJ were once very good at when they were journalists.
The July U6 really stands out. I will be watching more closely than ever.
Well done Mish, I agree with your summation, backed up by these pieces of data.
Midnight: “The economy is going in the shitter as we speak.”
Yes it is.
And it is now obvious to nearly everyone on this board with the exceptions of Casual Observer (no surprise) and JoJo who surprisingly points to revisions as if they will be anything but positive. What the Hell?!
“woocoodanode?”
Tanta, 17 years ago
I was there too and it was Hoocoodanode!
Never forget that half of any population is below average. We need idiots to help separate the wheat from the chaff, and to generate the shit that’s needed to prove the truth of the following rule: “Life is the process of separating the corn from the shit.” No shortage of separation opportunities in the comment section here. LOL
We are NOT all equal? It can’t be true.
Sadly, though; overall, the impact of an economic downturn is greatest on those who are less fortunate. I fear this time will be far worse than the last time, a deeper, longer recession without China to assist. Most people have nothing saved, and a lot of debt.
why do you think this? what numbers suggest “greatest” recession ever? what does china have to do with anything?!?!
Generally true but not entirely.
I’ve said we’ve been at stall speed for awhile now and said that it is possible a recession could happen. Even the Claudia Sahm says this time her recession indicator may be wrong for various reasons.
I think a lot of people’s idea of the economy going “into the shitter” is warped by time. 2008-2010 was the shitter. So was 2001-2002. We are nowhere near that now. I’m not even counting the Covid recession b/c it wasn’t a normal business cycle recession.
Anyway, I’d find it hard to believe that GDP is negative (the actual definition of a recession) at the moment based on my travels this summer to St Louis, Vegas, Ohio, Michigan and Toronto.
I suspect we are somewhere between 0 and 2% GDP for June and July. August may be closer to 0 but still think it will be positive based on end of summer travel.
One significant difference from 22 years ago is that the annual deficit has grown to a level that is roughly double the worst-case projection from less than a decade ago and it is more than 5x larger than it averaged at the turn of the millenium!
(also don’t overlook the significant demographic changes that occurred during the time)
https://www.crfb.org/sites/default/files/title_graph.png
Does 2% GDP growth matter when the deficit/GDP ratio is 5%?
Great analysis. We just received more push outs on customer orders. Fortunately, we still have backlog to work through. It’s definitely a slowing or shrinking economy.
do you listen to yourself? you have a huge backlog to work through on orders. That’s not what happens in a recession
Our business has always lagged the economy by about a quarter. We are last to slow up and last to actually see the turn around. First thing we see are the push outs followed up by lower new order flow. That’s what we are seeing now.
Thanks Matt3, what Business?
Thanks
Metal fabrication business. Mostly items for airline ground handling equipment and railway maintenance
sure but have you considered the possibility that your sales team sucks? Businesses live and die every day. There are many other possibilities other than “we are in a recession” because your sales are dropping.
Hmm. So his sales team suddenly sucks? Maybe, but maybe you are grasping at straws. I guess the latter.
how is that grasping at straws jake? matt assumes that his plummeting sales is attributed to this terrible economy that is headed to a guaranteed recession. all i am saying is that there can be a lot of reasons why your business is failing and we should not jump to conclusions let alone assume it is a leading indicator.
You might want to read the actual comment. I said “we have customers pushing out”. They are scaling back their production forecast and we react to this. We didn’t loose customers. They have changed their build plans. They do this either because they can’t produce at the rate they planned or they are not selling at the rate they expected. These are capital goods.
Matt is correct. And it’s not just matt. Please look at all the anecdotal comments from ISM
https://mishtalk.com/economics/the-manufacturing-ism-index-is-lower-than-every-economists-estimate/
How much elasticity of demand is there in your business? On the surface, and knowing nothing and not in the least pretending otherwise, it would seem to me (as a wild ass guess and only that) not that much. But I am curious, and would be interested if you could go into the dynamics of demand a bit.
At the beginning of recessions, products and services with greater elasticities tend to get hit first. Like for example potato chips, where volumes are down. If you are in a lower elasticity business as I have gone out on a limb and guessed, that tells me quite a bit. But I could be incorrect about the elasticity in your area, hence the inquiry. I will be happy to be corrected, because facts are the foundation of my thinking. I never argue with facts.
Thanks much for your posts. I find them interesting and valuable, or I would not have followed up with a request to educate me. Don’t let the comment section idiots get you down!
Agree with matt3. Our business was always a lagger in the economy. Business for us was decent when others had significant slowdowns. When the economy accelerated again, it took a while for us to pick up orders. Our company was a large subcontract, high-volume machine shop with 3 locations in the southeast. Highly competitive. Probably the closest thing to pure competition. Pennies per part would be the difference whether you won or lost a contract. Controlling material costs, expenses, and labor were critical factors in maintaining a successful business.
He didn’t characterize the size of the backlog. And he is describing a classic sign of the beginning of a recession.
What Business?
Thanks!
At the anecdotal level, the restaurants in the town near me say they are seeing fewer customers this summer tourist season than last year. One of the managers told me two days ago that in the last month or so he has had several people walk in and ask if there are any jobs. There aren’t any there, but it’s a change that he has noticed.
how can you be so cocky????
Mainly, to people being cocky to me.
True, but we have a rather elephantine problem defining what is what in the U.S. (AND GLOBAL) economy due to the erudite euphemistic LEGERDEMAIN (i.e. clever, but Mens rea based mendacity) the learned economists in the “Federal” Reserve have been spouting for over twenty years now.
There is a certain irony in those “Dot Plots” the “Federal” Reserve studiously points to, with much arm waving, as “evidence of an improving U.S. economy”. The fact is that the purpose of the “Dot Plots” is to AVOID connecting the reality based DOTS. It would be funny of it wasn’t so Mens rea deliberate.
The American Economy has been collapsing for at a little less than two decades.
Though no “economist” from the “Federal” Reserve will admit it due to their control of “U.S. economy reality” according to their “income cohorts statistical data” imaginative formulas (SEE: High Income Cohort stats HAPPY TALK DISTORTION of Low and Middle Income cohort DEPRESSION LEVEL LIVING STANDARDS) AND, of course, the Mens rea BLS blatant low balling of ACTUAL INFLATION,
The current, growing worse by the month, DEPRESSION actually began when the DUOPOLY SOCIALIZED (i.e. Bailed them out instead of putting them in prison) the losses of the “2008 Great Recession” CAUSING Bankers and told we-the-people to enjoy the Force majeure (i.e. TRILLIONS of FREE MONEY for the Banker/M.I.C. Government WELFARE QUEENS and the shaft for everyone else).
Money is borrowed to fund the Warfare State, but not invested in things that protect America or support the economy.
It’s not the 💰 debt, but what has been done with it.
It has not served America.
And the same people remain in charge. Have a nice day.
The debt has served parts of the people. Maybe peace will break out and we won’t need wars. But I wouldn’t bet on it.
Your Social Darwinist Idiology is showing. There is absolutely nothing “casual” about about an idiology that considers empathy a “weakness”. ANYONE who BETS on humanity “needing” wars is morally bankrupt, and proud of it. Enjoy your “apex predator” fantasies while you can.
The economy is going in the shitter as we speak.
Yes it is.
I am waiting for the August U3 number to move my agreement from 90% to 100%
They shine the shoes which simply cover up the stinky over-grown Yellowed Toenails.