Recession Indicators, Pt 2 Wondering whether we're poised to tip into a recession? The jobs market may point the way.
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Recession Indicators, Pt 2

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Recession Indicators, Pt 2

CARDIFF GARCIA, HOST:

This is THE INDICATOR FROM PLANET MONEY. I'm Cardiff Garcia.

STACEY VANEK SMITH, HOST:

And I'm Stacey Vanek Smith. And Friday and today, we've been looking to answer this question that for some reason people have been asking me a lot lately, which is, are we heading into a recession?

GARCIA: So on Friday, we looked at one of the most-watched recession indicators, the so-called Leading Economic Index, which is put out by the Conference Board. That index is made up of 10 kind of mini-indicators. And as it turned out, eight of those 10 mini-indicators are looking strong.

VANEK SMITH: But to really answer this question, we also wanted to look to a part of the economy that we focused on a lot on THE INDICATOR - the jobs market.

GARCIA: Yeah. So today on the show, we look at some indicators from the jobs market that help answer the question - are we headed into a recession, or are we not?

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GARCIA: So the jobs market - this is a part of the economy where we often really feel the economic ups and downs the most. I mean, think about it. Not just whether or not you have a job, but even if you have a job, are you worried all the time that you're going to lose it? Are you worried that you'll never get a raise? It's very often also a part of the economy that softens before an economic downturn. So to look at the labor market, we called up Heidi Shierholz. She's the director of policy at the Economic Policy Institute in Washington.

VANEK SMITH: And Heidi says within the labor market, there are three indicators she likes to look at that in the past have been very predictive of what the economy was going to do next.

HEIDI SHIERHOLZ: So one is the - what is known as the quits rate. It's the rate of people voluntarily quitting their job. So when people have found a job or are confident about their ability to find another job, they are willing to quit the job that they have if they're not happy in the job that they have. And so it's interesting. When the economy is stronger, that quits rate goes up. When the economy is starting to slow down, when people are not seeing other good prospects out there, the quits rate starts to edge down.

VANEK SMITH: Heidi says when the quits rate starts to edge down, it can be predictive of an economic downturn. The job market starts tightening. Companies aren't hiring as much. There's, you know, trouble in the water.

GARCIA: So when it comes to the quits rate, right now the indicator is saying...

SHIERHOLZ: It's very much in expansionary territory. It's continuing to rise. We are not seeing any kind of sign that that quits rate is going down or even leveling off.

GARCIA: Nice. People are quitting with abandon.

VANEK SMITH: I quit.

GARCIA: Yeah. Telling their bosses where they can take those jobs and shove them.

VANEK SMITH: You're not going to have Cardiff Garcia to push around anymore.

GARCIA: (Laughter) And all that quitting is actually a great sign for the economy - no signs of slowing down.

VANEK SMITH: So that is the first indicator that Heidi likes to look at. Heidi's second recession predictor in the job market is...

SHIERHOLZ: Employment and temporary help services.

VANEK SMITH: Oh, temp agencies? Like a temp.

SHIERHOLZ: Temp agencies.

VANEK SMITH: Yeah, yeah, yeah.

SHIERHOLZ: Yes, exactly. And so when a company starts to see slowing demand for its goods and services and wants to shed workers, the first workers that they're going to shed are their temporary workers. And so the first sign of loss of employment often comes up in the decline in employment and temporary help services.

VANEK SMITH: Heidi says temps are often kind of like a canary in the labor market coal mine because there's no commitment. When a company's budget gets tight or demand for whatever it's making goes down, it can just back off hiring temps before it starts doing things like laying off workers.

GARCIA: And Heidi says that right now, the temp job market is telling us...

SHIERHOLZ: Employment and temporary help services is just continuing to grow, along with the rest of employment in the economy.

GARCIA: Nice. Two out of three are showing great economic growth.

VANEK SMITH: But there's a third one.

GARCIA: Yeah, indeed. The final indicator that Heidi looks at has to do with how many hours people are working.

SHIERHOLZ: Looking at average weekly hours is the same kind of logic, that if businesses are starting to see demand for their goods and services drop off in a way that might make them worried, want to be pulling back, one of the first things they may do is, instead of firing workers, just cut back their hours.

VANEK SMITH: So the average weekly hours indicator is telling us...

SHIERHOLZ: If you look at average weekly hours of all employees, it's just been pretty darn stable for years now.

GARCIA: So all three indicators from the labor market are looking good.

VANEK SMITH: But what exactly does that mean, looking good? Like, for how long? Are we talking about a year, a month?

SHIERHOLZ: How long do I think that buys us? Like, an assurance that there's no...

VANEK SMITH: Yeah (laughter).

SHIERHOLZ: That - yes, right.

VANEK SMITH: How long have we got, doc (laughter)?

SHIERHOLZ: Yes, right. No. So I think the assurance is, you know - man, that's a good question. I would think - OK. OK. So I think that that means there's an assurance of at least maybe half a year that these - that we're not going to see a recession.

VANEK SMITH: Half a year. OK. Cardiff, May of 2019, same time, same place, same indicators?

GARCIA: Yeah, I'll be there. We can check in.

VANEK SMITH: All right. So there you have it - 13 indicators about whether or not we are about to head into a recession, 11 of them, thumbs up, two of them, as we heard Friday, looking a little soft.

GARCIA: Yeah. But as you may have noticed, Stacey and I have chosen 13 indicators...

VANEK SMITH: Yeah.

GARCIA: ...To answer a question about the recession. The number 13 - a little jinx-y, a little bit unlucky?

VANEK SMITH: I know. I know. I definitely do not want anything to do with possibly (laughter) jinxing the economy. We need another indicator, just to be safe. But I have another potential, which is maybe just the fact that people keep asking me about this is an economic indicator of sorts.

GARCIA: Yeah. And that is not a crazy idea. All right? So the Economist magazine itself developed an indicator a while back called the R-word index. It chronicles how often the New York Times and The Washington Post newspapers used the word recession in a headline. But it's just that the economy has been doing so well that the Economist hasn't actually updated that index in a while, so we don't know what it's saying right now.

VANEK SMITH: Yeah. So now we're just relying on, like, random people I meet, although - although - we did look at some Google search trends just to see what we could see. And it does look like the number of people searching for the term, quote, "next recession," end quote, has spiked in the last year. So...

GARCIA: That was our 45 seconds of Google searching, which is...

VANEK SMITH: Our deep research.

GARCIA: ...Rock solid. Oh, yeah.

VANEK SMITH: Our deep research here at THE INDICATOR (laughter).

GARCIA: But Heidi herself also said that she's been getting more of these questions lately as well. So we asked her, if the economic indicators are for the most part looking so good, why are people asking about a recession?

SHIERHOLZ: These questions come up because people see we're in a long expansion and a low unemployment rate. They think, how long can something like this last? And that - I think that a - just a key thing is it doesn't have to stop unless something makes it stop.

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