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,

[Amit M.]

@Account Closed said above, you can only appy your strategy (and mine) in specific markets. Namely heavily impacted, high appreciation markets that are class A to begin with. Most investors don't have the cash to jump in our markets- they typically have $20, 30 maybe 50k to invest (or less.). Another challenge is if you do not live in/near these areas. It's tough doing the kind of projects we do from afar, almost impossible if you're starting out.  Doing value added plays in B and C markets carries higher risk then doing it in the Bay Area. 

Unforch, RE investing is heavily location biased. Which is why I always tell starting investors THAT ALREADY LIVE HERE to get into 2-4 units where they owner occupy the smallest unit. If you get a decent deal your "living" expenses are offset and lower than renting equivalent, plus you learn landlording and building maint. first hand. Sit tight a few years, gain some equity, and then look at doing a cash out refi or HELOC and acquiring a 2nd property. Then build from there, hopefully working with the market cycle swings as this post is trying to decipher. You may not nail the cycle perfectly, but getting your timing "pretty good" is often good enough if you find a good value play, given the long term high appreciation rate the Bay Area is known for.

[Account Closed]

@David Faulkner,

You're correct.  When people come on here and ask for a 10-12 cap rate and each property must generate $300/door, it makes me wonder who would sell them those kinds of buildings? Real estate investing/hobby is a rewarding journey. The new investors have to know that they have to bring something to the table to complete the puzzle, and problem solving is one of them.  

Have to go do charity work now.  Chat later.

[Jason D.]

@Account Closed yes I will absolutely force equity. I am not in the market for turnkey rentals with absolutely no equity. I plan to be risk tolerant enough to withstand negative cash flow initially in hopes of reaping the rewards of sweat equity. Thank you for your analysis.