Saturday, February 2, 2008

Are We Headed Towards A Recession?

Cory over at the Madville Times is asking just that question based on the myriad of conflicting reports coming at us from all angles regarding our economy. It all came to a head when the jobs report came out and showed a hefty loss of over 17,000 jobs in January which was the first decline in 52 months. But what got Cory and others going was that even with the downturn in jobs, the unemployment rate actually went down from 5-4.9% during the same period.

So now we have reports that show we shed jobs but fewer people are out of work? That contradiction has some saying (including Cory's favorite Harvard math guy) that based on the unemployment rate we actually only have a small chance of sliding into a recession.
The 4-week moving average of initial UI claims was reported yesterday at 325,750, which is 17,000 lower than 4 weeks ago and essentially unchanged from the October average. Alone, trends in UI claims suggest a 4 percent recession probability. The unemployment rate is 0.1 points lower than December, but 0.1 higher than three months ago, suggesting an 8 percent recession probability. Combined, this yields an overall recession probability of 6 percent
What isn't mentioned in all the talk over the drop in unemployment is why? If you read the WSJ article and other sources you will find out that while we did lose 17,000 jobs overall, most coming in manufacturing and construction, other sectors like retail and service actually saw large increases in jobs. Further skewing the unemployment numbers, apparently a large amount of chronically unemployed folks just stopped looking so were not included.

Call me stupid, you wouldn't be alone, but how is a huge downturn in good paying manufacturing and construction jobs that is offset by a similar increase in low paying service and retail jobs a good thing? Sounds like a recipe for a recession to me considering the decline in spendable income that comes along with the change in employment.

Now mind you that recipe doesn't apply in South Dakota where we think paying our teachers like a high school kid working at McDonalds is a good thing and where the Governor heralds a minuscule unemployment rate that is highly dependent on those McDonalds jobs, but in the real world the numbers tell me we should be worried.

I'm with Cory, some math guy touting only a slim 6% chance of a recession only tells me that there should probably be more mathematicians out of work and no $1000 dollar check from Uncle Sam will change that or the obvious slowdown we are seeing in the economy. Call it whatever you like, a recession, a slowdown, or even just a blip on the radar, those living through it don't care what it's called.

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