Where do we stand?

Brad DeLong points out to a slightly different version of this chart
Always hard to fathom how the small looking drop on the chart threw millions out of their jobs. And while real GDP is almost back to its peak the Urate is still extremely high.

Peak in US Unemployment in 2011?

CalculatedRisk mentions Goldman Sachs' view:

The key features of our 2011 outlook: (1) a strengthening in growth from 2.1% on average in 2010 to 2.4% in 2011, with real GDP rising at an above-potential 3½% pace in late 2011; (2) a peaking in unemployment in mid-2011 at about 10¾%; (3) extremely low inflation – close to zero on a core basis during 2011; and (4) a continuation of the Fed’s (near) zero interest rate policy (ZIRP) throughout 2011.

The peak in unemployment is much later than suggested by CR's own look at housing starts and employment and also much later than what the Fed expects. As Paul Krugman reported here: "Well, the Fed expects unemployment to come down only very gradually — over 9 percent at the end of 2010, over 8 percent at the end of 2011, around 7 percent at the end of 2012. Inflation, meanwhile is expected to remain consistently below the Fed’s target."

Zirp could well last a while longer

Housing Starts and Unemployment Rate

CalculatedRisk has the chart and the explanations on a very close correlation between housing starts and the unemployment rate. Housing leads the economy and employment by 12 to 18months. According to CR this suggests unemployment may peak in spring 2010. Could central banks be tightening this coming summer? Earlier than suggested here.

Lags between end of recession, unemployment rate peak and fed tightening

Macroblog offers the following table:

Historical lags between end of recession, unemployment rate peak, and beginning of funds rate tightening cycle

End of Recession	Unempl. rate peak	Beginning of funds rate tightening cycle	Months from end of recession to unempl. peak	Months from unempl. peak to beginning of funds rate tightening cycle
Nov 2001	Jun 2003	Jul 2004	19	13
Mar 1991	Jun 1992	Feb 1994	15	20
Nov 1982	Dec 1982	Jun 1983	1	6
(Jul 1980)
Mar 1975	May 1975	May 1976	2	12
Nov 1970	Aug 1971*	Mar 1972	9	7

*Following the 1970 recession, the unemployment rate was 6.1 in December 1970 and again in August 1971. If the December 1970 peak is used, months from end of recession to unemployment peak is 1 and months from unemployment peak to beginning of funds rate tightening cycle is 15.
Source: Bureau of Labor Statistics, National Bureau of Economic Research, and Federal Reserve Board

Rates could stay low for a while

Okun's Law Illustrated

Via Brad Delong (x-axis is 8 quarter average annual growth)

Employment and Unemployment Claims

DeLong states: "Payroll Employment Starts Growing When Seasonally-Adjusted Unemployment Claims Fall Below 400K per Week or so..." and he has the chart to prove it.

Changes in Unemployment Rate and Recessions

We saw in the previous post that the unemployment rate is a lagging indicator as it usually peaks after recessions end.

The YoY change in the unemployment rate is less lagging. In 5 of the past 10 recessions it peaked as the recessions was still officially ongoing. On average the YoY change in unemployment peaked 4 months ahead of the unemployment rate itself. The YoY change in unemployment peaked earlier than the unemployment rate in 6 of the past 10 recessions while on four occasions both numbers peaked the same month.

See this chart. Now I know how to highlight recessions in charts. Nice!



Added note: econbrowser looks at 4 week average initial unemployment claims and the end of recessions and concludes: "If subsequent data confirm that the 4-week average of initial claims did indeed reach its peak in the number reported April 2, and if Gordon's pattern holds up, the recovery that many of us had assumed would be quarters or perhaps even years away may instead have started by June"

Unemployment is a Lagging Indicator

Using the St Louis Fed charting tool:

Since 1948 in 9 out of 10 past recessions the unemployment rate peaked after the recession ended and more so for the more recent ones.