Jobs Growth and Recessions

Here’s something I wanted to look at in more depth and found that there’s really not much there. Unfortunately, this happens a lot with research. Despite the results, I thought I’d share it with you.

I wanted to see how well jobs growth aligned with official recessions. The answer is “kind of, but not really that well.”

I took the last 1,000 months of nonfarm payroll data. I then sorted the data into 10 buckets of 100 months each based on monthly jobs gain.

To make the jobs data easier to read, I changed it from a percentage gain to an actual result that’s based off the current jobs number (151,980 jobs). That way, it will line up with this Friday’s jobs report.

For example, I found that there were 100 months in which the economy added 775,000 or more jobs. Just one of those months was an official recession.

At the other end, there were 100 months when the economy shed 275,000 or more jobs. Of those, 72 were in an official recession.

Here’s what the data looks like. The “From” and “To” columns are the boundaries of the 10 buckets. The jobs numbers are in thousands.

Not surprisingly, actual jobs gains and losses appears to be an inflection point for recession calls.

For example, there were 224 months when the economy lost jobs, or jobs growth was flat. Exactly half of those months came during official recessions.

There were 776 months when the economy added jobs. Just 20 of those months (less than 3%) came during official recessions.

Part of the problem is that jobs tend to be a lagging indicator. For example, here’s jobs growth during the Great Recession. Notice how jobs growth was still negative several months after the recession ended (the gray areas).

The recession in the early 2000s is an especially good example. The official recession was only eight months long, but the jobs market was weak for a long time afterward.

You may recall that the phrase “jobs-less recovery” was very popular at the time.

If this Friday’s NFP report is positive, then it’s historically unusual for this to be a recession. For now.

Posted by on July 31st, 2022 at 4:23 pm


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