This is an interesting one, one of our three U.S. recession indicators is the U.S. unemployment rate.
The U.S. Bureau of Labor Statistics data reveals that the U.S. unemployment rate has hit a new multi-year low four to eight months before the start of every recession since the 1940s. In other words, the economy hits full employment four to eight months before the start of a recession.
The unemployment rate goes up at least 1% and then doesn’t go back down without a recession occurring.
The question is whether the U.S. unemployment rate is low due to increased hiring or an increasing number of people quitting their jobs and the labour force?
Below is a graph of the hiring, quits and layoffs,
A fall in unemployment can come from more hiring, fewer layoffs or more people quitting their jobs or a combination of all the three.
Even though hiring has been increasing recently so have people quitting their jobs which has contributed to the low unemployment level.
One could say that times are good for people to quit their jobs, we do see that fewer people quit during a recession given fewer opportunities.
Total payroll or job growth hasn’t really accelerated since 2012, it remains close to a 2% annual growth rate.
There is another element to this – the labour force participation is at close to a 40-year low at 63.2%.
The unemployment rate is basically the difference between the labour force participation rate and the civilian employment to population ratio. As we wrote last year, fewer people in the working age group are participating in the labour force. Perhaps the question to ask is why are working age individuals quitting the labour force or not joining it at all?