04 June 2016

The Long Boom Hits 68th Month - Breaking Old Record by 20 Months

This current streak of uninterrupted job creation nearly ended with yesterday's report. As it is, the current streak has hit 68 months, which is almost silly. The next longest streak - from the 1980s - was 48 months, nearly 2 years shorter. 

There were cries of alarm at how few jobs were created in May - only 38,000. It is worth looking at the data to determine if this is normal variation in the midst of a long boom or if it signals a coming slow down. We are five months into 2016 and this is the lowest average of any year since the recovery began in 2011, which would certainly support the notion that we're headed for a slowdown. But it's also true that even during a bull market in stocks there are really bad days and weeks and even in a long boom there are likely to be bad months or quarters of job creation. Looking at the year over year numbers gives us a better sense of how much to worry, and that suggests that we're within normal ranges.

In this graph, you can see the change in unemployment rate (the blue bars) and total jobs (the orange line) created since the previous May. 

May of 2014 was the biggest drop in unemployment - a drop of 1.2 percentage points from May of 2013. May of 2015 was the biggest gain in jobs; 3 million jobs were created in the 12 months prior months. The smallest change in unemployment was in May of 2011, the first year of the recovery, when the unemployment rate fell only 0.6 percentage points. That was the also the weakest year for jobs created, a total of just over 1 million jobs. The question, though, is how the last twelve months compare with the average during this 6 year streak.

The average during this streak is 2.2 million and since last May the American economy has created 2.4 million jobs. On average, the unemployment rate during this time has dropped 0.8 percentage points every twelve months and in the last twelve months, unemployment has dropped by 0.8 percentage points. In other words, even though this month was one of the worst of the last 60 months, it marks the end of a perfectly typical year by the standard of this recovery.

It does seem reasonable to conclude that we'll have a negative number sometime in the next few months. It doesn't seem reasonable to assume that this will mean that we're heading into a recession. I think that the odds that this streak of uninterrupted job creation will last another year are about as high as the odds that this streak will finally end this summer but in either case, it will take more than a month or two of negative job numbers to signal a recession instead of a stumble.

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