The end of recovery's beginning?

The unemployment rate edged down to 10.0 percent in November, and nonfarm payroll employment was essentially unchanged. Mixed news on the surface and neutral when examined more closely.

Some analysts were advising cautious interpretation of the employment situation. With the proviso that it be cautious optimism, we agree; this is more an end to the beginning of recovery than a beginning of a transition into growth, but it is a beginning of recovery.

The mixed message of a drop in the unemployment rate and a very, very small negative number on the employment side was confirmed by our proprietary index of labor market conditions. The labor market index was unchanged in November as two indicators improved, two deteriorated, and the fifth was unchanged.

Now let’s do a bit of speculative technical analysis of some of our numbers. As mentioned in the May 8, 2009, post, the difference between this index and its 6-month moving average (6MA) often has been at its greatest negative value on or about the NBER-designated business cycle trough. In three of the six troughs it has spanned, the index-minus-6MA has troughed in the same month, in two others index-minus-6MA troughed a month before the business cycle, and in 1971 it lead by 6 months.

Index-minus-6MA it seems very likely troughed in March 2009. That would indicate a possible recession trough in March or April. Moreover, our good news diffusion index (GNDI) edged over 50 in June 2009. That the releases analyzed to compile that index generally had reference months of April or May gives additional impetus to the trough-in-April speculation. Finally, the summary of the business cycle chronology posted here on December 5, 2008, suggested that the recession may then have had “4-6 months left to run.” That would imply a trough in April, May, or June 2009.

April, it seems, is the common theme of all three of these strictly technical analyses. (Understand “strictly technical” to denote analyses of movements in a series without reference to the fundamental meaning, if any, of that series.) So, if next year at about Christmastime, the NBER business cycle dating committee announces that April 2009 was the recession trough, you heard it here first. If they pick some other date, you never heard of us.

In other news, new orders for manufactured goods, up six of the last seven months, increased 0.6 percent in October. Shipments, up four of the last five months, increased 0.8 percent. Good report, especially as the unfilled orders-to-shipments ratio edged up and the inventory ratio edged down.

Nonfarm business sector labor productivity increased at an 8.1 percent annual rate during the third quarter of 2009. This was a revision down from data released last month and reflected a downward revision to output and an upward revision to hours. Good, albeit less good than we thought before.