This post is by Marcus Lu from Visual Capitalist
The Surprising Link Between Unemployment and Recessions
The U.S. labor market is having a strong start to 2023, adding 504,000 nonfarm payrolls in January, and 311,000 in February.
Both figures surpassed analyst expectations by a wide margin, and in January, the unemployment rate hit a 53-year low of 3.4%. With the recent release of February’s numbers, unemployment is now reported at a slightly higher 3.6%.
A low unemployment rate is a classic sign of a strong economy. However, as this visualization shows, unemployment often reaches a cyclical low point right before a recession materializes.
Reasons for the Trend
In an interview regarding the January jobs data, U.S. Treasury Secretary Janet Yellen made a bold statement:
You don’t have a recession when you have 500,000 jobs and the lowest unemployment rate in more than 50 years
While there’s nothing wrong with this assessment, the trend we’ve highlighted suggests that Yellen may need to backtrack in the near future. So why do recessions tend to begin after unemployment bottoms out?
The Economic Cycle
The economic cycle refers (Read more...)