Does Rising Unemployment Signal a Recession?

Michael LebowitzAdvisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

In February 2023, I wrote Janet Yellen Should Focus On HOPE. The article walks through Michael Kantrowitz’s HOPE model. HOPE, or Housing, New Orders (ISM), Corporate Profits, and Employment, provides a handy acronym to track parts of the economy that are interest-rate sensitive and leading recession indicators.

As I wrote in the article:

These sectors often serve as leading economic indicators. As interest rates dampen economic activity in interest rate-sensitive sectors, other sectors and facets of the economy begin to feel the impact of higher rates. HOPE illustrates the various lags or the time it takes for rate hikes to affect economic activity fully.

Over the last year, many H, O, and P measures indicate a recession is likely. E, employment, has been the lone holdout. But there are recent signs employment trends are changing. Given rising unemployment may be the trigger that stops the economic recovery, let’s look at some leading employment indicators to see what they indicate.

If a recession is on the horizon, these employment indicators should provide a warning. But, as you look at these graphs and read my firm’s commentary, consider that weakening labor statistics may reflect the normalization of labor conditions and not necessarily an imminent recession as they may have in the past.