Does The Unemployment Rate Suggest The US Is In A Recession?

Are we in a recession?

From a technical perspective, the answer quite simply at this moment in time, is no. That answer is based on the fact that the widely accepted determination for whether a recession is occurring, is two consecutive quarters of negative economic growth, as measured by GDP.

For our Canadian viewers, we have yet to experience a quarter of negative economic growth, although we are getting there – Q1 2022 registered GDP growth of just 0.8% in Canada, which annualizes to 3.1%. Analysts meanwhile had anticipated an annualized figure of 5%.

Flash estimates for April however, did show that the economy shrank by 0.2% at the start of the second quarter, as highlighted by TD Canada Trust in an analyst note published yesterday.

For those to the south of the Great White North, for which must of the western world looks to for guidance on where the global economy is headed, things seem to be bit more advanced in the cycle. For Q1 2022, the US economy was estimated to have shrank by an estimated 1.4% in an advance estimate issued April 28, put forth by the US Bureau of Economic Analysis, which exists under the US Department of Commerce. The second estimate, put forth just six days ago on May 26, meanwhile increased that estimated decline to 1.5%.

In simple terms, this means that we are half way to officially declaring the current economic environment as being in a recession, at least for the US economy. With it now being June, we are roughly two months away from receiving the final confirmation to determine this, at least based on advance estimates.

There are, however, other means of indicating whether or not we are headed for such an economic situation. Armchair analysts highlight various leading and lagging indicators galore to make an argument on the matter.

And with that, it brings us to the chart of the day – US real GDP growth versus that of the unemployment rate. While many point to the strong jobs market as an indication that the economy is performing strongly, this indicator, to the surprise of even much of our own staff, is a lagging indicator. In fact, the strongest job markets tend to exist at the start of such recessions.

Why is this important in the current environment?

The significance is that the unemployment rate in the US is at multi-year lows, with both March and April 2022 data pointing to an unemployment rate of just 3.60%, which is comparable to the pre-pandemic lows of 3.50% experienced in January and February 2020.

This, amid a first quarter 2022 decline of 1.5% in real GDP terms, suggests that perhaps history is repeating itself once again.

Information for this briefing was found via IconEcon, TradingEconomics, and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.