Recession & Job Loss Predictor: Leads by 2.5 years!!

[J. Martin]

As I was poking around at the relationships between jobs and potential predictors of job losses, I started looking at a mathematical representation of something less quantitative, that we are all familiar with. This statistic seems to have a strong correlation with job growth and losses in the US. As you read below, you will see how I went from the raw data, to a transformation that shows a more clear relationship..

Orange Line is job growth/loss in the US. Blue line is my indicator/predictor..

What we can see is that there appears to be a pretty strong correlation between changes in these two variables. What is even better is that I have already transformed this data to show the strong correlation, even though my predictor variable actually significantly precedes jobs growth/losses. The predictor above is already "lagged" in time by 2.5 years! So let’s “unlag” it to it’s natural timing.. Slowly...

24 Month Lag

18 Month Lag

12 Month Lag

No Lag - Actual Data

The yield spread is the difference between 10 year and 2 year treasuries. "10's and 2's." When I first saw the chart directly above, it wasn't so obvious what the relationship was, but I could see the changes in job growth seemed to "chase" changes in the yield curve. And looked like it took about 2 years.

The yield curve is both a result of and a driver of the economy. A steeper curve generally indicates more economic health (demand for long-term borrowing), an accommodative federal reserve,