Labor Market Trendspotting

by: Ryan Avent

In Tuesday's link exchange, we pointed readers to this post at Econbrowser. In it James Hamilton writes that while initial jobless claims are pretty clearly indicating that we've reached a cycle peak for the rate of job loss, the non-farm payroll report we saw last week is behaving a little funny relative to previous recessions. Typically we'd expect to see flat or increasing payrolls at this point after the jobless claims peak. Instead, America shed 247,000 jobs in July.

Mr Hamilton concluded that this meant that recovery isn't yet secure, which is undoubtedly true. It might also just mean that the weird, sideways movement of the jobless claim numbers from late March to May made identification of the actual peak tricky, and so the American economy is just a tad behind where Mr Hamilton thinks it is.

Nate Silver, statistical wunderkind, seems to be suggesting that this latter possibility is the right one, and that labor market numbers will soon turn positive. In a long an interesting post on the possible trajectory of the American unemployment rate, he says:

If the labor force grows at its typical post-recessionary rate of 0.44 percent over the next six months, that means that the economy will need to avoid losing 375,000 more jobs between now and January for unemployment to stay below 10 percent. While there will almost certainly be some additional job losses this month and probably in September, I’d take about even odds on the economy gaining or losing jobs in October and November, and expect it to probably be creating jobs in December and January. In other words, I think it will win the race against the growth of the labor force. The most likely scenario is that the unemployment rate will flirt with 10.0 percent but not quite reach it.

Mr Silver seems to be a market mover; Intrade contracts on a 10% or higher unemployment rate by the end of the year fell nearly ten points Tuesday. Traders still believe that 10% or more is more likely than not, however.

This article originally appeared on The Economist.com