As predicted, the BLS is loath to let the unemployment rate break above the psychologically sensitive 4.0 percent level.
The April report came in at 3.9 percent.
When I was in academia, my research interest was confidence levels or “animal spirits,” as John Maynard Keynes termed them. I spent years thinking about this and discovered that the collapse of confidence that marks the end of the business cycle occurs when the unemployment rate moves above an exponential moving average over the past four years. People perceive that “things are getting worse” and initiate contractionary consumption and producer behavior. The post linked below provides a plain English explanation that appeared in ZeroHedge. The Wall Street Journal covered my research back in the 1990s.
Currently, the adaptation level is at 4.4. This means that if the unemployment rate crosses above (or even gets close to) this level, confidence will collapse, the unemployment rate will shoot upward, and GDP and industrial production will nosedive, all in the typical sequence of “self-organized criticality” that characterizes the end of the business cycle.
It involves an element of self-fulfilling prophecy but is tied to the fact that people are confident when conditions are better than what they’re used to, and they lose confidence when things get worse. Almost every American has some job insecurity and watches the unemployment rate for indications of personal risk.
The relationship between the unemployment rate and the adaptation level can be flipped (the adaptation level minus the unemployment rate) to represent a confidence metric.
In my last “‘animal spirits’ update, which ZeroHedge picked up, I alluded to their mockery of the fake unemployment reports being put out by the BLS.
Their analysis of the most recent report is at April Payrolls Debacle: Biggest Miss Since 2021 As Unemployment Rate Rises.
I recently posted the chart below of consumer credit card charge-offs in Fed reports a massive spike in credit card charge-offs. It’s quarterly data, so this is nothing new. It shows that the American consumer is tapped out. This tends to occur when the rate crosses above 4.0 percent (left axis).
The collapse of confidence is probably already happening for many households as they slip into a downward spiral of indebtedness as their unpaid credit card balances grow by more than 20 percent per year just on accrued interest. Usury is legal in the US. Banks pay a fraction of a percent on deposits and are not required to hold any reserves. “The Great Taking” is happening to the bottom 50 percent now.
The chart shows the rate of charge-offs in blue and the YOY percent change in brown. The rate of change seems to be declining, but if you look at the Great Financial Crisis episode, you’ll see a little hitch backward in the rate of increase before the crisis hit, when it exploded upward. Recently, the charge-off rate hit a multi-decade low after the stimmy checks of the plandemic depressed it, so the percentage gains have been larger than otherwise.
Any break of the unemployment rate above 4.0 percent will probably trigger a collapse of “animal spirits” — if they ever permit such a number to be published.
The credit markets will signal what’s going on.
Have a great week! Pray for peace! Get outside and catch some rays!