When things go well, it’s easy to be tricked into a state of complacency.
That’s especially the case with the economy.
Here’s a recent example…
When the May jobs report smashed economist expectations by adding 339,000 jobs, it made things seem just fine.
But signals from the labor market can be deceiving.
That’s because jobs are the last to break in response to worsening business conditions.
In fact, relying on good news from the monthly jobs report has historically been a sure-fire way to miss key crisis moments in the markets.
That’s why you shouldn’t ignore the risks lurking just because the labor market is humming along.
So today, I’ll explain what the latest jobs report really means… and which indicator you should be watching instead.
Delayed Reaction
In March of 2022, the Fed began its most aggressive interest rate hike campaign since the 1980s.
It brought short-term rates to their highest levels in 15 years.
Rising rates act as brakes on the economy. They make it more expensive to borrow money. And this affects both consumers and businesses.
Eventually, slowing activity ripples through the economy.
But as I mentioned earlier, the labor market is the last to break in response to worsening conditions. That’s because employers tend to push off firings as long as possible.
You see, firing workers is expensive. Plus, the cost to hire and train new employees when things get better make job eliminations a measure of last resort.
Just look at the chart below. It shows the unemployment rate going back more than 70 years.
Just before nearly every major recession (shown by the shaded areas), the unemployment rate was low.
That means everything looks just fine in the labor market right before the economy dives.
Back when the first signs of the 2008-2009 financial crisis started emerging, the unemployment rate stood at just 4.6%. That was among the lowest levels in history. But it was followed by one of the worst recessions the U.S. has ever seen.
But other early warning indicators of a crisis are out there.
They might not get the same media attention as the jobs report. But they’re still important. And their signals start flashing earlier.
And right now, the caution signs are emerging…
Early Warning Signal
While the May jobs figure paints a pretty picture, other labor market indicators aren’t so optimistic.
For one, let’s consider the claims for unemployment benefits. This figure represents laid-off workers filing for unemployment benefits, which bottomed out at 182,000 last September.
But that figure has gradually worked its way higher. It jumped to 261,000 last week. You can see that in the chart below…
Unemployment claims are telling us that the cracks in the labor market are starting to emerge. But you would have totally missed that by focusing on popular reports like the jobs report.
So when lagging indicators like the jobs report tell you everything is just fine, don’t be quick to believe them.
Nomi Prins, editor of Inside Wall Street, agrees. Here’s what she said back in March:
The jobs report painted a picture of an outstandingly (and surprisingly) strong labor market…
But don’t get too excited yet.
When you examine the real numbers, it’s a whole different story.
Instead, you should pay close attention to unemployment claims, which are reported every week.
If they keep jumping higher and show job losses are accelerating, that’s when the real economic crisis is about to hit.
What This Means for You
Mounting job losses will take another massive toll on the economy.
Unemployment affects everything from falling government tax receipts, swelling deficits, and ballooning loan losses at banks.
And an unfolding disaster in the labor market could take us to the next phase of the banking crisis.
You see, the issue facing banks today comes down to liquidity. That means many banks are struggling to raise enough funds to give customers their deposits back. So depositors are pulling money to get a better return on their cash savings elsewhere.
Despite the carnage we’ve seen in the banking sector recently, a liquidity crunch is nothing compared to what could happen next…
According to a “restricted” report circulated inside the Federal Reserve, more than 700 banks could be at risk of failure. That’s why on Wednesday, June 21 at 8 p.m. ET, Nomi is hosting an emergency briefing.
She’s calling it Countdown to Chaos. That night, she’ll show you why the coming crisis will feel a lot like a banking panic… and explain how you can prepare yourself. Sign up with one click here.
Overall, timing the arrival of a recession is tough. But having an arsenal of early-warning indicators will keep you one step ahead of the next crisis.
Regards,
Clint Brewer
Analyst, Rogue Economics
P.S. The warning signs above are just the beginning. See, in the days ahead, the financial elite are set to change the very nature of our money. One of the last times this happened, American savers lost 40% of their buying power, almost overnight. But that could pale in comparison to the overhaul that’s coming…
That’s why Nomi is hosting her Countdown to Chaos event on June 21. She’ll explain exactly what’s about to happen next. And she’ll reveal one-little known asset that can help you prepare for what’s coming – and even profit from it. To instantly reserve your spot for free, click here. You don’t want to miss out on this once-in-a-lifetime opportunity.