Economic downturn in 2018?


We’re Getting Awfully Close to Full Employment:

The headline numbers for April are terrific. The economy added 211,000 jobs in April, and the unemployment rate fell to 4.4 percent. That is not just the lowest jobless rate in a decade; it also matches the lowest level reached during the mid-2000s expansion. The last time it was lower was May 2001, 16 full years ago.

A caveat is warranted, as labor force participation of prime age works (25-54) is still a few percentage down from its 2001 peak. This is not surprising, as I take the end of work seriously as a thesis. But, I have to admit that in 2008 we’d probably be surprised that nearly a decade of very modest economic growth on a yearly basis has led us here.

I remember listening to commentators in the dark years right after the financial downtown explaining how many quarters of job growth would be needed for us to reach ~4 percent employment. It just seemed implausible to them at that time, and I have to say that I probably agreed with them on some level. But here we are.

But whenever there is exuberance about full employment and trillion dollar companies I start to wonder if perhaps we’re living before the fall. Are we going to go into a recession soon? I suspected something was off in the spring of 2007…though my pessimism in 2012 didn’t seem to pan out.

4 thoughts on “Economic downturn in 2018?

  1. My sense is there has been a cooling in tech start-ups. The billion dollar unicorns have burned through the VC money.

    Uber has about 18 months left of Saudi oil money (their last funding round was Saudi).

  2. I am very concerned about the prospect of an October 2017 crash (I have no idea why crashes seem to happen disproportionately in October, but they do) and have invested funds under my management with that in mind.

  3. I see the latest numbers as just another step in what has been a very slow recovery from a bad recession. Yes, the head line unemployment number is 4.4, which we have not seen since the spring of 2007. That is the U3 number but U6 which includes part-timers and discouraged workers is at 8.6. In 2007 it hit 8.2. More importantly, in the late 90s boom era, U3 was around 4 and U6 was around 7. BLS.gov.

    I looked at Civilian Labor Force Participation Rate (CIVPART) and the Civilian Labor Force Participation Rate: 25 to 54 years (LNU01300060)[also at FRED] and even the latter will have recover at current rates for a couple of years to get back to pre-recession levels.

    I also looked at the total employment to population ratio (at BLS.gov, but right now it is inaccessible). In the immediate post WWII era it ran between 55 and 58%. There was long secular trend up to the 1990s that took it above 60 in 1979. After the early 80s double dip recession it spend most of the 1990’s between 63 and 65%. The rate dropped in the 2000 recession but recovered to 2008, when it hit the skids, dropping to around 58%. The rate has inched back to 60.2%, but 90s levels are some distance away.

    I am sure that more subtle analysis can be done, but what I see is a very gradual recovery.

    A major issue is when will declining numbers of available workers, due either to decreasing unemployment, or to demographic trends (Boomers are now turning 71) cause wages to increase?

    Another angle is whether decreasing unemployment will cause the Fed to try to raise short term interest rates. Although, it is an open question as to whether the Fed has any real influence anymore. after all a decade of almost zero rates did not trigger a huge recovery.

    It is completely safe to say that there will be another recession in the next few years. It is also completely safe to say it will rain in the next few years as well.

  4. Back in 2006-2008 I was in real estate. The guys on the ground, the agents, certainly knew things were overheated and a correction was due in the 2 years before it hit. We knew the good times couldn’t last, and it was just a matter of riding the wave. By the end of 2008 I knew I wasn’t able to wait for the next rising wave and got out, ultimately ending up as a cardiac nurse a few years later. Glad I did. Never expected the down times to last so long. Is another correction due? Yes. It always is.

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