The Great Normalisation

Throughout the week we've seen a number of data points released out of the US, pointing to a slowdown in the jobs market, and the question is being asked again - are we in a recession?

Apollo's Chief Economist, Torsten Sløk, wrote a great piece on why the US is not in recession (yet), and why this is the soft landing we have been longing for.

Jim Reid of Deutsche Bank published this chart. What he's showing us is that if we were in a recession, what happens historically, is that we see break in the job numbers - to negative. He points out that so far in this cycle we haven't seen a sub 100,000 print.

If we look at all 13 post-WWII US recessions, there is a pretty clear pattern that the start of a recession is heavily aligned to the first month when payrolls turns negative. The good news is that we haven’t hit that level in this cycle and the slowdown last month could have been mostly weather-related. The bad news is that several other (but not all) measures of employment suggest a continued slowdown and more importantly this graph suggests that when you do get the first negative print, it tends to happen out of nowhere and tends to be the start of a trend. So a non-linear move where there’s no real warning of this in the months leading up to it. So it’s hard to use backward data as too much comfort.

Some are referring to this as "The Great Normalisation", which I tend to agree with. Initial unemployment and layoff claims remain low, while productivity growth is up. Furthermore, it’s possible that much of the recent rise in unemployment is down to an increase in the labour force through record migration or continued post-Covid normalisation.

For now, roll your worries into next month.