Is the U.S. in a Recession or About to Enter One Soon?

Former JPMorgan Chase Global Chief Economist & Ph.D. in Economics

The short answer is no, but we are unlikely to get a free pass! 

Financial markets understand the Federal Reserve is focusing on U.S. labor markets like a bird securing its prey to reduce inflationary pressures!  The problem with this approach is that most labor market data are lagging monthly economic indicators.  Some analysts monitor the weekly initial unemployment claims to move closer to real-time data.    This data is straightforward.  As tight labor markets ease and workers are laid-off, the number of individuals filing for unemployment benefits rises.  

The data reveals a slight rise in the number of individuals filing for initial unemployment claims in the months leading up to a recession.   While the incremental jump in weekly claims is minor ahead of a recession, our analysis concentrates on the levels.    Using our economic magnifying glass, we find little evidence that the U.S. is heading toward a recession within the next three months.

Source: The U.S. Bureau of Labor Statistics

We exclude the Feb. 2020 recession from our analysis because that economic contraction was due to the sudden closure of the U.S. economy and not due to evolving economic factors.

The data suggests that the latest initial unemployment claim levels do not imply a near-term recession.   In the interest of full disclosure, this newsletter predicted a recession would occur within 12 to 18 months dating back to June 2022.  Although these results fully support this view, they also imply that a recession is unlikely to occur within the next 3-months!

Are We Currently in a Recession?

This is where our analysis reaches a firm conclusion!  During a recession (excluding Feb. 2020), we find that the average initial unemployment claim readings average 435k compared to our latest monthly average reading of 236k.  These results find no support for the view that the U.S. economy is currently in a recession.

While we remain firm by assigning a 90% probability of a U.S. recession occurring between June 2023 to Dec. 2023, we find little evidence that we are there yet, and unlikely to enter that predicament over the next three months. 

Source: The U.S. Bureau of Labor Statistics

Concluding Thoughts

In previous research, we cited slower growth in the U.S. M2 money and weakness in leading labor market variables as signaling a U.S. recession is in our future but find no evidence that the day of reckoning has arrived just yet!