While leading macroeconomic data has overwhelmingly signaled for a coming recession since last year, an extremely tight labor market has given the Federal Reserve the runway it needs to carry out the most aggressive monetary tightening campaign in history. However, we are now beginning to see signs that the last bastion of economic strength may be fading…
One of the strongest historical indications that the labor market is meaningfully weakening is a significant increase in initial unemployment claims. Today, initial claims have jumped up to 256K on a four-week moving average basis, far above last September’s 53-year low of 191K. This represents an increase of more than 34% from its cyclical low. This rate of change has historically led to or coincided with a recession in 8 of the 9 previous instances (the 1977 aberration was the sole exception). If jobless claims continue to rise and additional labor market data begins to rapidly falter, there will be little doubt that recession has arrived.
