The latest jobs report looks good, at first glance. The umployment rate is below 4%, though it increased since April. Employers added jobs, but mostly in the public sector. Last July I posted something on how declines in the private-public employment ratio (PPER) predict recessions. The PPER was 5.92 last summer. The latest PPER is 5.84. The vertical gray bars in the graph below mark recessions. The blue line is the PPER.
The private sector has lost jobs relative to the public sector leading into every modern recession, except in 1982.1 The idea that a falling PPER predicts recessions makes economic sense. Private employers will be quicker to cut jobs as the economy begins to slow, because this saves them money and increases their profits. The latest Bureau of Labor Statistics data confirms that the PPER has been falling for nearly a year now. The current decline in the PPER looks like a new trend, not just a minor blip, and GDP growth does appear to be slowing. We should thus expect a recession in 2024. The only question is will the 2024 recession be a “hard landing” or a “soft landing”?
- 1The 1982 decline in the PPER lagged the onset of the 1982 recession, slightly.
