This past Friday, the Bureau of Labor Statistics released the unemployment data for October which surpassed even the most bullish Wall Street forecasts. The news that the economy added 271,000 jobs for the month (vs expectations of 182,000) sent predictions of a Fed rate hike in December soaring as the unemployment rate fell to 5%.
As Akin Oyedele via Business Insider wrote:
“After months of guessing, Friday’s October jobs report jolted the market’s confidence that the Federal Reserve could — and perhaps would — raise rates next month.
This looked like the kind of data that the “data-dependent” Fed needed to argue that the labor market had shown ‘further improvement.'”
Akin is correct and the market agreed as the probability of a Fed rate hike this year soared above 70%.
The support provided by the increase in employment, the drop in the unemployment, falling jobless claims and rising asset prices all suggest that the economy is, at long last, on the verge of acceleration. Right?
Maybe not?
Records Are Records For A Reason
Think about the following statement for a moment.
“Jobless claims recently reached the lowest level in 42 years.”
That is certainly a very “bullish” economic data point. However, when not put into some form of “context” it is really fairly meaningless. The chart below provides the “context.”
Notice that each of the “lowest levels of jobless claims since…” was set just prior to the onset of the next recession.
Since the economy is driven by “full cycle” patterns of growth, to peak, to trough, any data point that reaches a “record” level should be viewed within the context of the economic cycle. As with jobless claims, a recovery from a record high in jobless claims to record lows suggest a completion of the economy recovery from trough to peak. Importantly, the economy can not remain indefinitely at a peak, the other half of the normal economic cycle will ensue at some point.
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