At long last, have we reached the bottom?

An economist asserts that a peak in jobless claims forecasts the lowest point in a recession. And he thinks that moment may have arrived three weeks ago.


Andrew Leonard
May 1, 2009 11:27PM (UTC)

With apologies to Joyce Kilmer.

I think that I shall never see,
A poem lovely as a ... peak in the four-week moving average for initial claims for unemployment insurance.

On Thursday, the Labor Department reported that initial weekly jobless claims fell by 14,000. That brought the four-week average -- which aims to smooth out volatility -- down for the third consecutive week. If you hie yourself over to Econbrowser you can see a chart put together by U.C.  San Diego economist James Hamilton that paints a picture that looks awfully lot like a peak.

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Why should we care? Well, Bob Gordon, an economist who has been on the NBER Business Cycle Dating Committee (the "official" arbiter of when recessions begin and end) since 1978 says back in March he "discovered" a "surprisingly tight historical relationship in past U.S. recessions between the cyclical peak in new claims for unemployment insurance" and the point later determined to be the bottom of that recession.

On Friday, Gordon published a full-length, detailed, number-crunching analysis of his theory. Among other things, he investigated the possibility that there is some inherent difference in this recession that makes it more like the anomalous Great Depression than more recent economic contractions. He also considers the likelihood that what we are experiencing is a "false peak," just a statistical come-hither setting us up for a cruel, cruel letdown.

Gordon's conclusion:

My reasoning leads me to conclude that the ultimate NBER trough of the current business cycle is likely to occur in May or June 2009, substantially earlier than is currently predicted by many professional forecasters.

So there you have it. The bottom is in sight. We might actually be standing right square in the middle of it. Break out the (cheap, domestic) champagne (sparkling wine).


Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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