Monday, January 28, 2008

P(recession now)=0.355

Tim Kane of the Joint Economic Committee staff has a new paper on Employment Numbers as Recession Indicators. The abstract:
This paper investigates the value of employment data as real-time recession indicators. Among popular monthly labor measures, the unemployment rate is the most useful as an indicator of recession, whereas two top measures of employment growth–payroll jobs and civilian employment–have little value. Two other series, the labor force participation rate and the employment-population ratio, also provide little or no value in anticipating a recession. The best pre-recession employment indicator is actually weekly claims for unemployment insurance (UI). The paper reviews a new technique for predicting recessions, and develops an employment recession probability index. The index indicates a 35.5 percent chance that the U.S. economy is in recession, sharply up from 10 percent last month.