Last night I posted a chart showing the relationship between interest rate hikes and subsequent changes in the unemployment rate. I got some pushback because the data was so noisy it seemed like the relationship was made up. To clarify things, here's a smoothed version of the chart that uses rolling 6-month averages:
Apologies for how busy this chart is. The blue line shows every single time long-term interest rates have been pushed up by two percentage points or very close to it. There are six instances, and in one of them (1995) nothing happened. In four of them unemployment started to increase 6-18 months later. The final one happened earlier this year.
There's no cherry picking and no noise. Unemployment and recession follow interest rate hikes by about a year. I expect the same thing to happen this time.
The big unemployment jumps were COVID and the 2008 financial crisis. The other unemployment changes appear to be modest and occurred on an overall downward trajectory where maybe the unemployment rate was just being bumpy. Not sure we can get much from the chart, but I agree with the principle that raising rates slows down the economy which then would impact unemployment. The question is how much and whether there are other externalities that can also affect the rate like a slowing immigration number and an aging population for starters.
Real on the web home based work to make more than $14k. Last month I made $15738 from this home job. Very simple and easy to do and procuring from this are just awesome. For more detail visit the given interface.. http://incomebyus.blogspot.com
Sadly, we now have to figure out whether this is just someone with poor English-language skills or a poorly trained Generative AI. #modernproblems
I have the same comment that I had last night.
https://jabberwocking.com/i-wouldnt-count-on-a-soft-landing-folks/#comment-112575
I think the chart is good, I just don't think it shows what you're saying it shows.
5 times over the last 25 years:
* one recession didn't happen
* one recession was Covid
* one recession was subprime mortgages
2001 was the bursting of the stock bubble, which I could say was at least an indirect result of the rise in interest rates, though maybe it was more about rates being too low than too high (irrational exuberance and all that).
1990-1991 was arguably about rising rates, but there was also an oil shock. And there was also increasing consumer pessimism, which could have been caused by inflation just as much as higher interest rates.
Rate increases slow down the economy. No one disputes this. But do they automatically cause a recession? Not proven.
Indeed - these two lines are not really related, at least not to each other. The unemployment rate is just a sign of what was happening at the time, and the long term rate is just a sign of what the response was to what was happening at the time.
They're essentially moving in tandem until we hit the zero lower bound.
I think the bigger picture here is that the business cycle has been being smoothed out by structural changes in the economy over the last 40 years. Things have become more and more stable, but in a perverse sort of way - it's not like wages have really gone up while the unemployment rate has glided downwards long term. Another way of looking at it might be thinking of the line where things are bad enough for the average person that unrest becomes a real possibility as an asymptote that those in charge of the system are attempting to approach.
I've been listening to a podcast series on Jack Welch and I'm beginning to think that him and the changes he ushered in (or provided cover for) are basically the reason why Everything Sucks Now.
You may be confusing causes and symptoms. Blaiming 'subprime' instead of interest rate increases which are act on the economy by slowing housing construction and reducing home values is an odd way to frame it. Its like dismissing the gun as a cause of death and instead blaming the big hole in their chest.
The 1995/96 recession that didnt happen was also associated with large recessions in Asia and Central/South America. This appears to be the best argument for the idea that 'rising rates dont necessarily cause recessions'.
4 out of 5 times there were recessions in the US, the other 1 was associated with multiple recessions in small/emerging economes. For each of these we can assign blame to something other than interest rates....but we cant really deny that in all cases, rising rates were followed by large economic upheavals. But this association can never be 'proven' like a math function might be. We can always rationalize or dismiss the data to fit the narrative we want.
One thing that pops out to me is that interest rates are bouncing off of basically 0% this time and even though the increase is sharp, it is really just being increased to what appears to be a historical average as opposed to earlier increases that started at around 4% and rose to between 6 and 9%. Could that possibly factor into whether this set of increases lands in a recession or soft landing. Not an area I have a ton of expertise in, but I'd be interested in anyone has a take on this.
Could we maybe stipulate that anything the late 2,000's was, um, weird?
Wait, so was 2020.
And so was 2000.
Graph is useless, doesn't make the point intended.
Kevin this looks VERY unconvincing to me. The interest rate in 2006 almost certainly didn't cause the crash in 2008. (We know what did - lending fraud). The rise in unemployment in 2020 was due to Covid - so what is left - a small recession in 2002 after a relatively small interest rate rise (or was it the end of the artificial Y2K stimulus to the IT industry)? Oh - and the mild 1990 recession that was over 30 years ago. Kevin - this is weak as water.
Lending fraud in the US did not cause the US recession in 2008. There is no rational narrative that explains how 'lending fraud' (whatever that means) leads to massive unemployment and almost all sectors of the economy contracting for over 2 years.
As I recall, subprime mortgages and unethical lending practices were a big part of the 2008 recession. Add in those equally unethical bundled soon to fail mortgages as a real investment option and the bank/stock failures were inevitable.
edit: add in the lax oversight of banks and the recession couldn't help but happen.
edit 2: oh, and notice all this thievery happened under Republican control.
Lending fraud in the US did not cause the US recession in 2008.
It's highly plausible it was one of the causes, in that it was fraud that helped push mortgage debt to unsustainable levels. In the parallel universe where the US in the early aughts maintained a scrupulously regulated mortgage sector, it seems likely we'd have endured a garden variety recession instead of the meat grinder we got.
My eyes must be bad. The chart looks exactly like the previous one.
You know, you'd be more convincing if you did a cartesian plot of each series of recessions, with unemployment rate on one axis and fed rate on the other.
I guess the 2% increase in interest rates caused Covid. And the 2% rise over 3 years in the mid-2000's led to the banking crisis while the 2.3% increase in the mid-90's cause unemployment to drop. Sorry Kevin, this data doesn't say what you want it to.
It's certainly seems possible we could soon see a significant increase in unemployment, perhaps in association with a recession. But one simple piece of data that argues against the arrival of recession this year or next is the recent duration of expansions. If the US economy enters recession prior to the end of 2024, the current expansion will have been the shortest since the early 70s unless you count 80-81, which, in the light of history, really looks more like an interlude within a double dipper. The shortest expansion since then was the one that preceded the Great Recession, and that one managed to last more than five years. The other three expansions we've enjoyed since the 70s averaged close to ten years.
Private sector debt levels have also come down precipitously over the last three years, which should partly insulate the economy from higher interest rates.
https://www.ceicdata.com/en/indicator/united-states/private-debt--of-nominal-gdp
https://fred.stlouisfed.org/series/HDTGPDUSQ163N
Rising Fed Rates = higher unemployment?
Maybe but you can have one without the other
Unemployment is affected by other things like COVID - which has NOTHING to do with Fed Rates.
WE are in really un-charted territory here KD. Interest may rise and home building may slow down causing "some" unemployment rise but I don't think it will be all that bad because we have far fewer workers than we had 25 years ago.
Add in the abysmal attempts at border control and you can see where unemployment might become totally independent of the FEDRES actions.
They are becoming more and more independent of each other. Old paradigms are bad. We need some new measures or adjustments to our old measures.
If UI goes up to 4.5% will it be bad ?
Based upon old measures and thought processes - no because 4.5% unemployment is right in the sweet spot. If it goes to 7%, yeah thats important.
We are trying to make the arguments we need using old paradigms.
It never works
But then again who'd a thunk a female U.S. Congresswoman would show a dick pic on live TV and push unverified FBI info just because her "old friend" is under investigation.
That times they are a-changing
BTW, a rise in unemployment does not = recession.
You know that.
I can't understand why you're pretending otherwise.
Econ 101 and Fed mantra...
Ok, maybe time to re-write the text book....
So why isn't the Fed rate corrected for inflation?
😉
There might be a couple of reasons why this time is different. First, housing starts hasn't fallen. Interest rate rises are supposed to slow the economy in large part by decreasing the number of housing starts. But our housing supply is so deeply screwed up, that it's still profitable to build housing even at these high interest rates.
Second is public spending. The Inflation Reduction Act is spending money on infrastructure to both help maintain employment levels, and to reduce costs (and thus increase profits and employment) for those that depend on improved infrastructure.
This is in marked contrast to the 2007 recession where we raised interest rates and cut public spending.
Also, for the 2021 recession, it's one hell of a coincidence that unemployment rose due to a pandemic during the 6 to 18 month period after interest rate increases peaked.
Labor shortages
Are they real?
https://www.huffpost.com/entry/teen-poultry-factory-child-worker-deaths_n_64b7ecbce4b0ad7b75f67af7
{snip}
For the third time in five weeks, a 16-year-old boy has died after sustaining on-the-job injuries at an industrial site, as lawmakers in several states advocate loosening child labor laws that protect minors from hazardous work.
The latest teen death was Friday night at the Mar-Jac Poultry plant in Hattiesburg, Mississippi, authorities said. It’s the third worker death at the plant since December 2020.
Duvan Tomas Perez, who NBC News reported moved to the U.S. from Guatemala six years ago, was cleaning machinery as part of a sanitation crew when he became trapped in equipment on a conveyor belt. He died at the scene, police and the poultry company said.
His death follows two other teens’ deaths in Wisconsin and Missouri.
Michael Schuls, 16, died on June 29 after sustaining injuries at the Florence Hardwoods logging company in Florence, Wisconsin. Michael was attempting to unjam a wood-stacking machine when he became pinned under machinery on a conveyor belt, resulting in what the coroner identified as traumatic asphyxiation, The Associated Press reported
Will Hampton, 16, died on June 8 in Lee’s Summit, Missouri, after becoming injured while working at the Lee’s Summit Resource Recovery Park landfill. The high school sophomore became pinned between a tractor-trailer rig and its trailer, resulting in his death, police said in a statement.
{snip}
I don't know what to say. A 16 year old working the sanitation crew at a chicken factory? Thats usually 11pm to 7am.
An accident at a log processing facility?
Perhaps Moms for Liberty need to adjust the focus of their anger at something that could hit home for them...............
You ever wonder WHY they're relaxing child labor laws? Employers NEED the help.
I certainly believe in a relationship between interest rate increases and the private economy. But this time, the economy is being supported by 3 massive federal spending programs- the infrastructure bill, the CHIPS bill, and the IRA. Plus large increases in discretionary federal spending in each of the last couple years. This is showing up as a very unusual increase in the federal deficit (see Jason Furman's tweet thread this morning for details https://twitter.com/jasonfurman/status/1682162593191071744?s=20) So maybe we can avoid a recession this time?
One problem with your data is that you are giving credit to the Fed raising interest rates to the outbreak of Covid.
Maybe you should say 3 out of 4 instead of 4 out of 5.
In any event, the Fed worked hard RAISING interest rates above 0% for most of the teens by QE. Basically, it bought long term bonds which pushed down long term rates by selling short term debt which pushed up short term rates. You didn't notice they pushed up short term rates because they were basically at 0.0% the whole time.
This time is different. We may get a recession but it is far less likely than you think based on this data. The other times rates went up, new construction was already hurting by now. It hasn't happened.
Please remember your stats. You can find tons of things that happened 3 out of 4 times that are pure chance. Is this a pure chance correlation or not?
Fortunately, we will NEVER know.
What I see in the chart is that the "bad thing happened" markers are missing. A better theory is that something bad like covid, the financial crisis or september 11th happens and then people lose their jobs. That has happened 3 times in the last 23 years . The interest hikes have happened 6 or 7 times over the same period. It would be surprising if we didn't see a slight correlation. If something on a 4-5 year cycle happens within 2 years of a bad event that does not mean it is causal.