The Keystone Speculator's Unemployment Rate Indicator Chart; Unemployment Rate Signals Potential Recession Ahead

(this article originally appeared on The Keystone Speculator blog on 2/1/19)

by K E Stone

While everyone is enjoying the 304K jobs report singing songs and drinking Fed wine, Keystone brings a wet blanket to the party. The unemployment rate rises to 4.0%. Granted, as people perceive that an economy is recovering, they will rush back into the labor market looking for a job, and then are counted again in the rate statistic, so the unemployment rate rises. In a strong economy, the rate will bump higher for a couple few months but then revert back to trending lower.

The rate should have already exhibited this behavior rather than this point in time. Perhaps the bump higher in jobs numbers are due to folks, downtrodden for many years, running back to the job market in November and December simply to work another job so they can buy some Christmas presents for the kids. "Ya want some fries wit dat burger?" This behavior would not be consistent with a strong economy and the rate may be rising because the rate should rise (a recession is coming faster than anyone realizes).

In 2010, Keystone's unemployment rate signal crosses below the proprietary signal line (green box). That forecasted a strong labor market ahead. Keystone was happy to announce this news but was met with jeers and rotten tomatoes. As usual. Back then, markets were on shaky ground with investors still wondering if the economy will recover. The negative sentiment and doom and gloom was high. As typically is the case, the job market improved at that point forward as Keystone forecasted. In fact, there has been 100 consecutive months of positive jobs numbers a record. There have been eight unemployment rate numbers that are sub 4% (3.7% to 3.9%) since May 2018.

However, the nine years of joy must end sometime. Keystone empties the punch bowl and tells everyone to go home, there is a troubled labor market beginning and problems in the jobs market with a higher unemployment rate will signal that the recession is coming faster than anyone realizes. The 4.0% unemployment rate moves above the signal line (red box). Give the data another couple or three months, say into April, before this dire outcome can be truly confirmed.

Remember, recessions occur when the economy and markets appear very strong. Watch the PMI data because if a recession is on the come, the PMI's will retreat suddenly and fall like a rock.

For you 20 to 30-year olds, make sure you read Keystone's article about recessions since you have never seen one. You are going to be punched in the face and likely will be laid off from your job in the months ahead. If you are a millennial in that age range or a Generation Z'er, read "Clueless Millennials Must Prepare Financially, Mentally and Emotionally for the Coming Recession; A PSA (Public Service announcemnt) for Millennials Explaining the Ugly Realities of Economic Recession."  This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.