Albert Edwards from Societe Generale posted a graph similar to the one on the left below. It tracks the and its 3-year moving average. The red arrows signify every time the unemployment rate rose above the moving average. As we circle, the unemployment rate is now above the moving average. Albert’s comment alongside his graph is as follows:
No-one is predicting a US recession in 2026 despite this simple indicator having a 100% track record of success. This time may well be different, but you’ve got to have a bloody good reason to ignore this. Are you feeling confident?
Given that the unemployment rate is again above its 3-year moving average, we must raise concerns that this indicator, with its “100% track record,” is signalling a recession. This time may be different, as Edwards alludes, but if it’s not, here are some statistics on the prior instances to help us appreciate what might occur:
On average, the unemployment rate rose by 2.60% after crossing its moving average. The minimum increase, in 1960, was 1.00%. The bar chart on the right shows each instance.
In every instance prior to the current one, the recession began at the time of the crossing or earlier. As we circle below, the most recent cross occurred in June 2024. In other words its been over a year and a half since it crossed. Might this time be different?
More Concerning Labor Indicators
The graphs below are courtesy of Peter Brerezin of BCA Research. The graph on the left shows that the job openings-to-worker ratio has turned negative. This indicates that more people are seeking jobs than there are job openings. On its own, that graph is not overly concerning, as it is most often negative, even during periods of strong economic activity. However, the graph on the right, showing that once the job openings rate falls below 4.5%, the unemployment rate starts rising, is worrisome. Continued declines in job openings, according to the BLS report, could push the unemployment rate higher and the economy into a recession.
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Unemployment Flashes A 100% Recession Warning
