Wednesday, June 4, 2014

Optimistic Take on Unemployment

Here is an optimistic take on unemployment from Jeff Stibel at the Harvard Business Review.  (HT: Tyler Cowen)  He forecasts an unemployment rate of 5% by July 2015.  His reason is that small business expansion has been very laggardly in this cycle, and is just now entering the acceleration phase that we would normally see earlier.
This recession was marked by an overall decline in small businesses (typically we see small business starts accelerate), decrease in mean employment size of small businesses, and a lack of turnover for the most tenured employees. All of this led to high unemployment rates. Optimism indexes show a similar trend: bigger businesses have gained in optimism at a faster pace than their smaller counterparts, contrary to past recoveries.Contrast these trends with what has happened historically and it is clear that these anomalies are critical; any projection that relies too heavily on historical patterns is likely to be imprecise when the historical account materially differs from present events.
Moreover, the trends we’ve seen since the beginning of the recession are beginning to shift. Our data is finally showing that the smallest of businesses are growing  more optimistic about their prospects, which will eventually lead to the increased hiring that typically comes at the start of a recovery. If the trend holds, it means that the typical post-recession jobs growth will be inverted during the current economic recovery. Thus, we should begin to see an acceleration in new jobs and rapidly decreasing unemployment.
There are a large number of factors that could be in play here.  One factor could be the influence of real estate equity in small business and start up funding.  Possibly the delayed recovery of housing and of small business employment are related.

In any case, the thesis appears to be built on some of the uncontroversially peculiar trends in this cycle.  I would add that the commenters on the article have created an almost museum-quality demonstration of all the biases and "mood affiliation" positions that can create a profitable tradable position if they are held universally enough.

1 comment:

  1. Let's see, the last recession ended in June 2009, so July 2015 would be six years. Just about the length of the Bush era expansion.