Thursday, January 8, 2015

December Employment Preview

I don't have much to say about this anymore.  Here is the comparison I have been using between insured unemployment and total unemployment.

It looks like my simple forecast for total unemployment has been a little optimistic for the past 6 months.  I suspect that the employment gains we saw coming out of the end of extended unemployment insurance at the end of 2013 were mostly played out by about June, and that very long term unemployment and some of the unusual shorter term unemployment will be somewhat persistent, which seems to be a pattern in the insured vs. total unemployment relationship over the long term.  I thought that the trend in very long term employment would continue its linear fall, but this may have leveled off.

Insured unemployment also seems to finally be leveling out.  It had declined to very low levels.  At this point in the pattern, in the past 3 recoveries, insured and total unemployment rates have declined very slowly for several more years.  (Visually, in the graph, they continue to follow the same trajectory, but with less decline.  The dots, representing months, are closer together.)  So, the signal from the employment market is that the recovery is at the early stages of maturity.  I would expect the unemployment rate to meander around down through the mid-5%'s through 2015, with some noise along the way.

The first graph here is my regular graph.  The second graph is a close up view.  I have added a second forecast line, which assumes that the unusual decline in unemployment from the end of EUI ends in June.

The third graph is the longer view, smoothed.  The relationship has a counterclockwise movement through the business cycle.  The slope of the relationship is fairly consistent during downturns.  After the counterclockwise movement through the recovery, insured unemployment rises in the next downturn.  The level of unemployment when that rise ensues appears to be related to the scale and timing of previous cycles.

I don't expect to see any sudden movements or speculative opportunities coming out of employment numbers for a while.

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