When will this horrible recession be over? According to one surprising source, it’s over right now.
The source is Robert J. Gordon, an acclaimed macroeconomist and professor at Northwestern University. It’s surprising to learn he thinks the recession is over, because he is one of seven members of the elite Business Cycle Dating Committee of the National Bureau of Economic Analysis . These are the people who decide officially, for the record books, when recessions begin and end—usually many months after the fact, when the decision is really obvious. I’m unaware of any previous case in which a member of this Committee has ever stepped forward and declared the end of a recession in real time.
Gordon bases his gutsy call on an indicator that he says the Committee never even looks at: claims for unemployment benefits. He’s talking about the so-called “jobless claims” number that is released every Thursday morning before the market opens. Based on detailed data from state agencies, it reports the number of workers who have asked for unemployment benefits in the previous week. As Gordon points out, there is no other major macroeconomic statistics that comes out so frequently, and so close to real time.
According to Gordon’s research, in every recession since 1974, the peak in jobless claims came within weeks of the bottom of the recession. This is a remarkable research result, in my opinion. I was impressed a year ago when economist Edward Leamer of UCLA wrote a paper that accurately explained recession timing with just three variables—the unemployment rate, total payroll jobs, and industrial production. But Gordon has done Leamer two better. Gordon has it down to a single variable: claims. And because claims data is available nearly immediately, investors can use Gordon’s insight to make actual trading decisions.
Claims are typically reported as a four-week moving average, to smooth out some of the random noise from week to week. All Gordon has done, really, is to make the simple observation that the peak in the four-week moving average coincides perfectly with the ends of recessions. I charted the data to prove it to myself, and he’s right. Here it is
The source is Robert J. Gordon, an acclaimed macroeconomist and professor at Northwestern University. It’s surprising to learn he thinks the recession is over, because he is one of seven members of the elite Business Cycle Dating Committee of the National Bureau of Economic Analysis . These are the people who decide officially, for the record books, when recessions begin and end—usually many months after the fact, when the decision is really obvious. I’m unaware of any previous case in which a member of this Committee has ever stepped forward and declared the end of a recession in real time.
Gordon bases his gutsy call on an indicator that he says the Committee never even looks at: claims for unemployment benefits. He’s talking about the so-called “jobless claims” number that is released every Thursday morning before the market opens. Based on detailed data from state agencies, it reports the number of workers who have asked for unemployment benefits in the previous week. As Gordon points out, there is no other major macroeconomic statistics that comes out so frequently, and so close to real time.
According to Gordon’s research, in every recession since 1974, the peak in jobless claims came within weeks of the bottom of the recession. This is a remarkable research result, in my opinion. I was impressed a year ago when economist Edward Leamer of UCLA wrote a paper that accurately explained recession timing with just three variables—the unemployment rate, total payroll jobs, and industrial production. But Gordon has done Leamer two better. Gordon has it down to a single variable: claims. And because claims data is available nearly immediately, investors can use Gordon’s insight to make actual trading decisions.
Claims are typically reported as a four-week moving average, to smooth out some of the random noise from week to week. All Gordon has done, really, is to make the simple observation that the peak in the four-week moving average coincides perfectly with the ends of recessions. I charted the data to prove it to myself, and he’s right. Here it is
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