Are we headed for a recession? Well, it is an election year …

News you can use? (AP file photo)

News you can use? (AP file photo)

Last week’s jobs report was surprisingly weak: The estimated 38,000 jobs added during May marks the weakest month since September 2010, when the economy last lost jobs. It’s the weakest showing in the month of May since 2009, when the economy was still shedding hundreds of thousands of jobs per month. The report also showed more people wanted work than in the month before, and more people were working part-time but wanted full-time jobs. Those aren’t good signs that a streak of employment gains — which has been long, if modest in strength — is going to continue..

A broader measure of employment data, the Federal Reserve’s Labor Market Conditions Index, tells a similarly ominous tale. The index, developed two years ago with data going back to 1976, has fallen in each month this year, with the number getting progressively worse. I looked over the data to see if I could glean anything about trends and past indicators. There have been only eight other times in the data set when the index fell at least five straight months; half of them were followed by recessions.

Our current bad stretch doesn’t look as bad as those four pre-recession dips — yet. Those four lasted at least a little longer (between six and 12 months) and were more intense (with an average monthly index decline of at least 3.9 points, vs. the current average of 3 points). The intensity seems to be more predictive than the duration, but a) we’re dealing with a small sample size, and b) We’ll have to keep an eye on the LMCI over the next couple of months.

That said, the odds aren’t on our side. At 83 months old, the current expansion is well past the post-WW2 average of 58 months. It doesn’t help that it’s a presidential election year and there’s no incumbent. Also during the postwar period, there have been six previous presidential elections in which the incumbent wasn’t up for re-election (I included LBJ in ’64 and Ford in ’76 as incumbents, even though they hadn’t been elected to the presidency). Two of those six times, the election was held during a recession; two other times, a recession began within a year of the election; the other two times, a recession began within two years. It has been much less common for recessions to follow so soon after elections with incumbents, even if the incumbent lost.

But it doesn’t appear that changes in administration have sparked economic downturns. The opposite appears more likely.

Yes, the aforementioned recessions typically began after the election. But remember, declines in the LMCI have often foreshadowed recessions. In elections where the presidency changed parties* the LMCI tended to fall in the months before the election, even if a recession wasn’t already under way. The election-year LMCI through October fell an average of 6.8 points per month in years when the White House changed party hands. In years where a party kept the White House, it rose by an average of 4.3 points.

To repeat: This year’s average so far is minus-3 points.

Is that a function of businesses sensing a regime change is in the works, fearing the unknown, and shedding workers as a result? Or it a matter of voters feeling the downturn before a recession is officially declared — remember, these declarations by definition don’t come until a recession is more than six months old — and voting accordingly? I don’t know.

Nor do I know whether this year’s declines reflect the possibility of Donald Trump’s becoming president, or whether his electoral fortunes are being buoyed by a weak economy. Either way, election-year weakness in the economy could help him defeat Hillary Clinton. That would be more than a bit ironic for those of us who think Trump’s economic policies could be bad for the country.

* This is not the same thing as an incumbent losing; Republicans taking the White House from Democrats in 2000 also counts.

Reader Comments 0

21 comments
JohnnyReb
JohnnyReb

The group of prognosticators I keep locked up in the basement say the economy will turn for the better as soon as it is obvious Trump will win.  We won't even have to wait for his inauguration.

That same groups says, if Hillary wins you best get some of that gold into your portfolio you see hawked on the tube.

Lil_Barry_Bailout
Lil_Barry_Bailout

Reminiscent of the economy turning to garbage as it became clear Obsama was going to win in 2008.

JohnnyReb
JohnnyReb

"That would be more than a bit ironic for those of us who think Trump’s economic policies could be bad for the country."

OK, Kyle you have reservations about Trump handling the economy.  You have reservations about other issues as to Trump as well.

The big question is, who do you think would be better: Trump, or Hillary?

If Trump, then how about putting a positive spin on your essays instead of giving the Left ammunition?

If you think Hillary would be the better president, move your desk beside Bookman.

Trump is not perfect, but  if you are looking for the perfect person you are about 2016 years too late, plus the voters have spoken.

There is no such thing as being half-in.


Lil_Barry_Bailout
Lil_Barry_Bailout

We're due for a recession as Kyle points out.  What really sucks though is that we didn't get decent economic growth since the last one.  I guess Obama's regulatory orgy, tax increases, unilateral lawmaking, and constant hassling of businesses worked out about like Real Americans said they would.

JohnnyReb
JohnnyReb

@Lil_Barry_Bailout you are correct Barry.

The Libs won't even recognize the recession was over 6 months into Obama's first term, before any of his supposed fixes kicked in.

That the trillions he has spent basically gave us more welfare and little else, except of course he raped the GM stockholders and gave the company to the union.

RoadScholar
RoadScholar

"But it doesn’t appear that changes in administration have sparked economic downturns. The opposite appears more likely."

If the repubs take over and implement more trickle down..... can you say Kansas!

Wascatlady
Wascatlady

Look for a big run on white sheets!

PJ25
PJ25

Look around you at the next traffic light and as far as you can see is mortgaged automobiles, Harley's, boats, campers, RAZRs, etc.  This so-called recovery was nothing more than bailing out the banks and Wall Street so they would start lending again (beginning about 2012) to the middle three-fifths of the middle class because the economy revolves around the middle class financing things they usually don't need.

Thirty percent of all car loans are 61-96 months and 50% of re-fis last year stole equity.  On top of that, the gubbermint itself tells us median family incomes are down and most of the post-recession jobs that were created are low paying jobs.  The majority of the shiny new things you see are a result of cheap financing, which by the way is built into the cost of the widget.


That said, we're over-do for a recession and the private equity market is already planning for it, which is why that fancy multi-use Perimeter project has about a 20% chance of happening this building cycle. 

JFMcNamara
JFMcNamara

@PJ25 , As of 2015. the personal debt to income ratio was at 100%, its lowest level since 2002 and on the decline.  In 2008, the debt to income ratio was 130%.  Debt could be lower, but it has a long way to go before it becomes disastrous. 

JFMcNamara
JFMcNamara

We're past due for a recession as you stated.  We don't have a bubble in housing, credit or oil which would drive a major one.


The stock market is over priced at the moment though and could stand to lose 10-15%, but that is driven by low interest rates.  That would hurt, but most folks could ride that out.  


Any recession would probably mirror 2000 where it was shallow and somewhat contained.   Because of Dodd Frank, there aren't any sleeping giants out there that could recreate 2008.

Kyle_Wingfield
Kyle_Wingfield moderator

@JFMcNamara "Because of Dodd Frank, there aren't any sleeping giants out there that could recreate 2008."

That depends. The main effect of financial regulation since 2008, especially Dodd-Frank, has been to make the "too big to fail" banks even bigger. If there are problems we don't know about, that might not turn out well.

JFMcNamara
JFMcNamara

@Kyle_Wingfield @JFMcNamara , Its not the number of assets under control.  It's the riskiness of what they invest in. 


The problem in 2008 was that commercial banks had used a substantial amount of money in their investment banking arms.  Before Glass-Steagall was repealed, the Investment and Commercial parts of banks had to remain completely separate.   We had a long run of back stability up until that point. Once it was repealed, banks started using all of their assets, commercial and investment, to buy risky assets like credit default swaps. 


That led to the banks becoming overleveraged and defaulting when their investments went bad.  Dodd-Frank ensures that the commercial arms remain solvent even if the Investment arm takes major losses.  That's what stress testing is doing. 

Kyle_Wingfield
Kyle_Wingfield moderator

@JFMcNamara "Its not the number of assets under control.  It's the riskiness of what they invest in. "

I'd say it's both.

Lil_Barry_Bailout
Lil_Barry_Bailout

@JFMcNamara

There is a huge, trillion-dollar student lending bubble about to burst (defaults are already sky high).  And there are huge, underfunded union pension plans that the slugs will be crying for bailouts for.

McGarnagle
McGarnagle

So May was a bad month. What about the previous months? Do those not count? Weakest May since 09 and weakest month since Sept. 2010.