Why A Quick Change In The Employment Rate Is A Good Indicator Of Recession | KERA News

Why A Quick Change In The Employment Rate Is A Good Indicator Of Recession

Aug 28, 2019

Financial analysts have spent the last several weeks talking about whether a recession is looming.

On a recent episode of Think, host Krys Boyd talked with Ryan Nunn, an economic studies fellow at the Brookings Institution, about why sudden changes in the employment rate might mean a recession is near — or here.

  Interview Highlights: Ryan Nunn…

…on whether there’s an official definition of recession: “There is a definition of a recession. The problem with it is that it's only obvious that you're in a recession, by that definition, well after the fact. So what we do is we wait for the National Bureau of Economic Research to declare that we've been in a recession. They're looking at the kind of GDP declines that we've seen and other factors. But those announcements come well after the fact. So during the Great Recession, which started in December of 2007, we didn't actually get an announcement that we were in a recession until the following year, December of 2008.”

…on how labor conditions can predict recession: “This gets to some work that we've done building on some work by economist Claudia Sahm at the Federal Reserve. We have this measure that we call ‘The Sahm Indicator’ because it's based on some work that Claudia did, and what she did is she focus on the quick increases in the national unemployment rate as opposed to the level."

"The level of the unemployment rate is a useful thing to follow, but what we've found, what Claudia found is especially worrisome, is a quick increase in that. So regardless of where you start out in terms of the rate, when you have an increase in the national unemployment rate of about half a percentage point, which doesn't sound like all that much but it turns out to matter a great deal, you're basically already in a recession, essentially all of the time. So even at an unemployment rate of 3.7 percent as we have today, a quick increase is not going to bode well for the macro economy.”

…on how the ‘Great Recession’ wreaked havoc unequally: “For some groups, like those with college degrees and more advanced degrees, the increase in unemployment was there, but it was somewhat muted. For those with less than a college degree, we saw a much larger increase in unemployment. We saw very different increases in unemployment for black and white workers, and more generally, you see a recession that is imposing extremely high costs on certain groups of people.”

Ryan Nunn is policy director at The Hamilton Project and a fellow in economic studies at The Brookings Institution. Listen to the full conversation here.