Market analyst: Market to focus on labour outlook

Larry Berman underscored the role of employment in an economic recession in his latest analysis

Market analyst: Market to focus on labour outlook

While historically, the labour market is the last business cycle to break, the market might shift its focus to the labour outlook, as it also plays a major role in the economy, particularly, the recession.

“This cycle, given the difficulty of finding qualified workers post-COVID-19, is likely even more leveraged to the health of the U.S. worker/consumer. You have likely heard that consumer credit for the lower half of income earners is already being stretched,” market analyst Larry Berman in his latest Berman Call for the BNN Bloomberg.

Berman explained that since most of the jobs being created, particularly in the US, over the past year have been part-time, it indicates that the current labour market is fragile, and could spell disaster for the economy.

Using the indicator created and developed by former U.S. Federal Reserve economist, Berman said that the current record of weekly joblessness in the US may indicate that the moment of recession is close.

“Historically, the lower end of weekly claims was about 300,000 in recent decades given the 150 million plus of the labour force. The recent post-COVID-19 layoff levels have been closer to 200,000, so still pretty low overall. But it’s clear that employment is the key to recessions,” Berman explained.

The said indicator, Berman further explained, can be used to forecast “every recession in the post-Second World War period by looking at the rate of change in the unemployment rate.”

“And while this cycle is unique in many ways given the rebalancing of the world’s supply chains and reversal of the globalization theme of recent decades, we expect the indicator to still be a reliable forecasting tool,” Berman said. “That said, we heard a call with Sahm following the recent U.S. employment report saying that she looks at the “totality” of the economy, not just the labour market.”

Berman further explained: “The rule takes the U3 (unemployment rate) and takes a three-month average compared to the 12-month low. If the rate is 0.5% above the low point of the past year, the odds of a recession are 100%. The indicator is not flashing a recession yet, but it is close.”