During his presentation today, DoubleLine Capital’s founder Jeff Gundlach was downbeat on many things — from oil to stocks.
But one thing he was upbeat on was the possibility of a US recession.
According to Gundlach, the best measure of a coming recession is the labour market.
And the best measure of the labour market is the unemployment rate and its 12-month moving average.
When the unemployment rate rises above its 12-month moving average — which is basically the long-term trend of the labour market — a recession is typically close. Higher unemployment means that companies (and perhaps more importantly, consumers) aren’t doing well and cutting costs, leading to lower consumer spending and a downward spiral for the whole economy.
Right now, the unemployment rate is at an 8 year low at 4.9% and well below its 12-month average of 6.27%, according to Gundlach’s chart.
Gundlach’s basic argument is that until the unemployment rate starts moving substantially higher, no recession is imminent.
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