Excerpt from the Hussman Funds' Weekly Market Comment (8/4/08).
Today, there is still a lively debate about whether the U.S. economy is even in a recession. Last week, investors received fuel for both sides of that debate. On one hand, new claims for unemployment shot to 448,000 – a 5-year high. If you recall the first chart in Bill Hester's piece (Recessions and the Duration of Bad News), you'll note that on average, we observe such a spike about 5-6 months after the start of a recession. So the current spike is actually very consistent with a recession having started in January. As Bill noted in that March piece “Jobless claims drift up as a recession approaches and then spike once the economy begins to contract. If they remain on course with their average behavior in past recessions, claims could leap another 25 percent to almost 450,000 within the next few months.”
Friday's unemployment report, on the other hand, seemed to provide a hopeful sign, as the monthly job loss figures came in modestly lower than expected. Even though the favorable surprise in the monthly figure wasn't even close to the unfavorable surprise in the weekly figure, it may take a few more hostile figures from the more volatile weekly claims numbers to convince investors that the job market is indeed deteriorating.
Even now, however, the unemployment rate (which increased to 5.7% in the latest report) has already advanced enough from last year's low to confirm a recession. Note that advances of the sort we've observed in recent months have never occurred outside of recessions. The chart below presents the unemployment rate, with recessions shaded. The shading for the current period reflects our view that a recession began about January of this year.
Of course, last week also featured another data point that has helped, for now, to sustain the debate about whether the economy is in fact in recession. The Bureau of Economic Analysis released its “advance” estimate of second quarter GDP growth, indicating estimated growth at a 1.9% annual rate. Given the view that a recession represents two quarters of negative GDP growth (an erroneous belief, according to the NBER recession dating committee, which is the official arbiter of U.S. recessions), a positive print on second quarter GDP seems to argue against the idea that the U.S. is in recession.