Georg Vrba: “One can use the unemployment rate model to provide an estimate of the future unemployment rate (UER). This model suggests that the unemployment rate will decline to 7% by the end of 2013, and to 6.5% by the middle of 2014; the implication being that the Fed could abandon its easing measures fairly soon.” (When Will the Fed’s Easing Measures End? May 7, 2013)
A reliable source for recession forecasting is the unemployment rate, which can provide signals for the beginnings and ends of recessions. The unemployment rate model (explained here), updated with the November figure of 7.0%, does not signal a recession now.
The model relies on four indicators to signal recessions:
- A short 12-period and a long 60-period exponential moving average (EMA) of the unemployment rate (UER),
- The 8-month smoothed annualized growth rate of the UER (UERg).
- The 19-week rate of change of the UER.
The criteria for the model to signal the start of recessions are given in the original article and repeated in the Appendix.
Referring to the chart below, and looking at the end portion of it, one can see that none of the conditions for a recession start are currently present.
- • The UER is not forming a trough and its short EMA is well below its long EMA – the blue and red graphs, respectively, the spread being -0.39%.
- • UERg is currently at a low level, minus 10.0% – the green graph.
- • Also the 19-week rate of change of the UER is now at about minus 5.4%, far below the critical level of plus 8% – the black graph.
For a recession signal, the short EMA of the UER would have to form a trough and then cross its long EMA to the upside.(...)Click here to continue reading the original ETFDailyNews.com article: The Unemployment Rate Is Not Signaling a RecessionYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
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