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Comparing Unemployment During Past Recessions at Trader’s Narrative

Late last year, in December, the National Bureau of Economic Research (NBER) officially set the start of the current recession as of December 2007. So basically, it took them a whole year to come to the same conclusion that I did almost immediately: We are in a recession!

This current recession has brought with it many unique economic and market based statistics. Among them is the distinction of being the first recession since World War II which has included two back to back quarters of positive GDP growth. The economy expanded at a 0.87% in the 1st quarter of 2008 and 2.83% in the 2nd quarter.

Today’s announcement from the Labor Department that the unemployment rate had actually fallen from 9.5% in June to 9.4% in July surprised many. Payrolls came in at -247,000 in July - the consensus was at -325,000. It is the first time since April 2008 that the unemployment rate has decreased. Here’s a chart of the unemployment rate since 1948:

unemployment chart of the day
Source: Chart of the Day

Since 1948 there was only one occurrence of a higher unemployment rate: June 1982 to June 1983. Although this small decrease and the elevated level of the unemployment rate is providing reasons for many to foresee the end of the recession, there are two reasons why we may see even higher unemployment in the near future.

First, a one-month decline in the unemployment rate (even a small decline) after a significant spike (i.e. the unemployment rate spikes by 1.5 percentage points or more) has tended to occur slightly after a recession had ended.

Second, the small and surprising decrease in unemployment may not be a sign of economic strength but merely based on the fact that many are simply giving up looking for work and therefore are no longer counted as being unemployed.

Here’s a chart of the employment to population ratio which has fallen to a 25 year low of 59.4%:

employment population ratio chart

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One Response to “Comparing Unemployment During Past Recessions”  

  1. 1 Justin

    Take it from someone who has been following this downturn extremely close, it aint over, the fat lady has not even made it to the stage yet. Enjoy the psydo-bull market.

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