U.S. Recession Risk Still Low Based On August Jobs Data
James Picerno | Sep 09, 2015 07:13AM ET
The pace of growth for US private payrolls Economic Trend & Momentum indices that’s scheduled for later this month at CapitalSpectator.com. Meantime, the early clues suggest that macro risk is still low for the US. The one caveat: recent turbulence in financial and commodity markets suggests that macro risk has moved moderately higher in recent weeks. Even so, the increase still falls short of a clear warning. Meantime, there’s not been confirmation in the hard economic numbers to date, which suggests that elevated risk levels via a markets-based prism in recent weeks may be noise.
As for a broad-brush review of the labor market, LMCI increased to +2.1 in August, a seven-month high. “The LMCI generally declines during recessions and typically rises during expansions,” NBER will declare last month as the start of a new US recession.
Estimating current macro conditions through the prism of jobless claims (based on monthly averages) tells a similar story, namely: business cycle risk remains low.
As a check on the signals generated by the labor market, let’s turn to a real-time approximation of economic conditions via a probit model that analyzes four data sets on a daily basis: the US stock market (S&P 500); the Treasury yield curve (10-Year yield less the 3-Month T-bill yield); the credit spread (BAA-rated bond yield less AAA yield); and spot crude oil prices (based on the US benchmark, West Texas Intermediate). The current estimate has popped higher in recent weeks, although it’s pulled back slightly, dipping to around 14% as of September 8 after reaching 23% earlier in the month. The bottom line: the probability is still low that an NBER-defined recession has started for the US, according to this methodology.
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