Entering text into the input field will update the search result below

The Unemployment Rate Is Not Signaling A Recession: Update - April 6, 2018

Georg Vrba profile picture
Georg Vrba


  • For what is considered to be a lagging indicator of the economy, the unemployment rate provides surprisingly good signals for the beginning and end of recessions.
  • This model, backtested to 1948, reliably provided recession signals.
  • The model, updated with the March 2018 rate of 4.1%, does not signal a recession soon.

A reliable source for recession forecasting is the unemployment rate, which can provide signals for the beginning and end of recessions (Appendix B charts the UER recession indicator for the period 1948 to 2015). The unemployment rate model (article link) updated with the March 2018 rate of 4.1% does not signal a recession.

The model relies on four indicators to signal recessions:

  1. The short 12-period and
  2. a long 60-period exponential moving average (EMA) of the unemployment rate (UER).
  3. The eight-month smoothed annualized growth rate of the UER (UERg).
  4. The 19-week rate of change of the UER.

The criteria for the model to signal the start of recessions are given in the original article and repeated in the Appendix.

Referring to the chart below and looking at the end portion of it, one can see that none of the conditions for the start of a recession are currently present.

  • The UER was in a process of forming a trough in 2016 and then declined throughout 2017, but held steady at 4.1% for the fifth straight month. The short EMA remains below its long EMA, the blue and red graphs, respectively, and the spread is minus 0.18% and is below last month's minus 0.21%.
  • UERg had formed a trough in 2015, peaked end 2016 and declined throughout 2017, and since the beginning of 2018 is rising again. It is at a low level and at minus 11.76% vs. last month's minus 13.10% - the green graph.
  • Also, the 19-week rate of change of the UER is now at zero - last month minus 0.3% - well below the critical level of plus 8% (the black graph).

For a recession signal, the short EMA of the UER would have to form a trough and then cross its long EMA to the upside. Alternatively, the

This article was written by

Georg Vrba profile picture
Georg Vrba is a professional engineer who has been a consulting engineer for many years. In his opinion, mathematical models provide better guidance to market direction than financial "experts." He has developed financial models for the stock market, the bond market, yield curve, gold, silver and recession prediction, most of which are updated weekly at http://imarketsignals.com/.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (2)


I'm not the best chart reader out there, but if I look at history the green line has crossed 0 or came very close quite some times and was followed by a recession in about a year. Maybe the 1/2017 high got close enough? Let's wait and see.

Thanks for sharing as always.

Cambridge STR profile picture
I just read a recession quickly follows an upturn in unemployment on average in FOUR months. Of course, the recession is announced much later, but since 1950 will begin at around 4 months. following an uptick in unemployment.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.