RECESSION WORK: TIME to dig up our favorite recession indicator again

Recession talks swirl everywhere, so let's take a look.

By Wolf Richter for the Wolf Street.

What are we looking for? The National Bureau of Economic Research (NBER), which calls the official recessions in the USA, has always defined recessions as broad economic swings, which include swings on the labor market, such as:

Weekly data for unemployment insurance benefits are the earliest indicators of systemic job losses. Among the data records is the weekly claims for unemployment benefit, also referred to as “insured unemployment”, our favorite recession indicator. The number of people who receive unemployment benefits according to their first claim counts essentially.

The previous three business cycle recessions – without the pandemic that was a blocking and no economic recession – came after insured unemployment was used up:

2.64 million in December 2008, Beg. Of great recession
2.56 million in March 2001, Beg. From 2001 Recession
2.49 million in July 1990, Beg. From 1990 Recession.

The levels that contain a recession have increased because the overall employment has increased. This employment growth over the years causes the recession additive line to be upward (black line in the following table).

Today around 2.7 million insured unemployment would point out the beginning of a recession.

According to the Ministry of Labor, insured unemployment has dropped to 1.88 million in the past week last week. The four -week average rose by 8,750 to 1.87 million and has remained essentially unchanged since October. These levels are still historically low and far below the recession indicator of 2.7 million. The purple columns indicate recessions.

Pay attention to the 1st increase to 2. high values. This requires two factors: an increase and high values. Note how unemployment is insured before a recession increase. It is this type of increase to much higher levels that we have to pay attention to.

In 2023 there was an increase, but from the record level during the lack of work, and since the level he climbed to was still so low, this increase was not a recession with it. It “only realigned the job market”.

This measure is a combination of two factors: essentially how many people have been released and how long it takes to find a new job. If people take longer to find a job, even if only a few new people are released, this measure slowly increases, which was the case in 2024. However, it has been approximately unchanged in the past six months.

It increases when there are suddenly many layoffs that the labor market cannot absorb, and the number of people who receive unemployment benefit increases significantly to a much higher level. That is the recession indicator.

Discharges are still historically low. Weekly initial claims for unemployment insurance benefits – people who initially submit to benefits for unemployment insurance after the reduction of unemployment insurance – were dropped by 13,000 in the past week, according to today's Ministry of Labor.

The four -week average, which celebrates the weekly Schwirge, rose by 1,000 to 227,000 and is historically low. The purple columns indicate recessions.

Note how these claims begin before an economic cycle recession (the recession of 2020 was not an economic recession, but a blocking).

The fact that insured unemployment (first diagram) rose from the Labor Shortage deep stalls in 2022 in 2022, despite the small number of new layoffs (initial claims, second diagram), shows that it now takes more time to find a new job than in 2022. And the low number of initial demands shows that only a few people are rejected. Companies do not cut off the staff, but they are hired more slowly than in 2022, although historically, they still absorb people in a quick clip.

These are signs of a reasonable “balanced” labor market where the supply of workers and demand for workers is roughly balanced and that the shortage of labor and the enormous change of the work population in 2021 and 2022 have disappeared.

Negative GDP growth for other reasons. If a historical increase in imports that are deducted from GDP increases GDP growth into the negative, this is not an indicator of a recession. On the contrary, an increase in imports is not a sign of a weak demand. In the first quarter of 2025, this situation happened, as in the first quarter of 2022, but the growth of consumer expenses was okay and business investments were very strong, so this was not a recessional indication. But GDP is published quarterly and far behind.

Front indicator. This data on the services for unemployment insurance benefits are weekly and more direct than monthly or quarterly data, and its increase to high level warns of a recession in advance, which makes the recession indicator a leading indicator.

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