Economists aren’t soothsayers, and they can’t exactly predict the timing of the next recession. Forecasting business cycles is challenging, but this doesn’t mean it’s pointless. And it certainly doesn’t stop economists from trying. New research from an economist at the Federal Reserve Bank of San Francisco may have discovered a new indicator of a coming recession that offers a faster signal than other techniques, such as Treasury yield curve inversions.
Thomas Mertens, VP of Economic Research at the San Francisco Fed, published research recently that suggests an approach based on the jobless unemployment rates. That means unemployment including workers in several categories that may not be considered technically unemployed based on definitions used by the Bureau of Labor Statistics. Mertens uses a three-month moving average of that number as an early signal of when the economy has already fallen into a recession.
The technical explanation of Merterns’ technique is a tad long-winded, but you can read it yourself here. His most recent assessment using his formula suggests no immediate recession. But he also said, “This assessment could change quickly if the unemployment rate ticks up in the coming months.” There’s plenty of debate now about if or when a recession will hit, including if we’re in one already. Watching the data, like this new indicator proposed by the Fed economist, can help real estate owners and investors better prepare.