Thursday, March 7, 2013

Still no sign of a recession

Weekly claims for unemployment continue their downward trend, and announced corporate layoffs remain low. These two indicators strongly suggest that the economy continues to avoid another recession; their is no apparent deterioration in the labor market. Indeed, it is still the case that conditions are improving: the number of people receiving unemployment insurance is down 22% from a year ago. There are 1.5 million fewer people "on the dole" today than there were a year ago, and those people have an added incentive to look for and accept a new job.

As long as the economy avoids a recession and continues to grow, albeit relatively slowly, the rationale for holding large sums in safe, conservative assets (e.g., cash, cash equivalents, and short-term Treasury securities) becomes weaker and weaker. On the margin, more and more people are going to want to reduce their holdings of low-risk assets and increase their holdings of risk assets; this shift in the appetite for risk is a large part of what is driving riskier asset prices higher these days.


Gloeschi said...

...just like they didn't indicate a recession in 2007.

L.A. said...

UE claims were not at an expansion low in 2007. In fact, as shown in the graph, claims were trending upward in 2007 and preceded the recession. Claims are now at a new low in this expansion. The last time a recession happened in the face of a new low in claims is..... Never.