Employment Is Sending Signals: Recession or Normalization?
In February 2023, we wrote this article. The article walks through Michael Kantrowitz’s HOPE model. HOPE, or Housing, New Orders (ISM), Corporate Profits, and Employment, provides a handy acronym to track parts of the economy that are interest rate sensitive and tend to be leading recession indicators.
As we wrote in the article:
These sectors often serve as leading economic indicators. As interest rates dampen economic activity in interest rate-sensitive sectors, other sectors and facets of the economy begin to feel the impact of higher rates. HOPE illustrates the various lags or the time it takes for rate hikes to affect economic activity fully.
Over the last year, many H, O, and P measures indicate a recession is likely. E, employment, has been the lone holdout. However, there are recent signs employment trends are starting to change. Given rising unemployment may be the straw that breaks the back of the economic recovery, let’s look at some leading employment indicators to see what they indicate.
If a recession is on the horizon, these employment indicators should provide a warning. However, as you look at our graphs and read our commentary, consider that weakening labor statistics may reflect the normalization of labor conditions and not necessarily an imminent recession as they may have in the past.
The H in HOPE is housing. Given the economic significance of new and used home sales and the construction of single and multi-family homes, we review the housing construction labor market and its prospects.
As is to be expected, with mortgage rates near 8%, housing activity has ground to a halt. The only sign of life is from new home sales. Homebuilders offer buyers mortgage rates 3% or so below current rates to sell
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