Interpreting the Employment Report

The JEC's Tim Kane (via email) uses his recession model and interprets today's employment report:

In this morning's BLS Employment Situation report for Jan 2008, the unemployment rate is 4.9. Therefore the new employment-based recession probability index (RPI) is 0.060 (or 6.0%).

The RPI is a combination of the two most valuable employment indicators of a recession's early stages: weekly initial unemployment insurance (UI) claims and the unemployment rate.

The 4-week moving average of initial UI claims was reported yesterday at 325,750, which is 17,000 lower than 4 weeks ago and essentially unchanged from the October average. Alone, trends in UI claims suggest a 4 percent recession probability. The unemployment rate is 0.1 points lower than December, but 0.1 higher than three months ago, suggesting an 8 percent recession probability. Combined, this yields an overall recession probability of 6 percent.

Other economists, I should note, are less sanguine.