'Animal spirits' update
recession imminent
The unemployment rate rose to 4.1 percent in June, while the adaptation level declined to 4.23 percent, putting the economy at imminent risk of recession. See my post “Whither ‘animal spirits’” for the theory behind this.
The basic idea is that once unemployment rises above an adaptation level based on the last four years’ values (unemployment has been falling), this will trigger feelings of “things are getting worse” and feed into a self-organized criticality of lower spending, lower production, and increased unemployment. If we follow historical patterns, unemployment might approach 10 percent in the next few years. Here is the graph:
The unemployment and adaptation levels can be flipped (adaptation level minus unemployment rate) to provide an index of “confidence,” which is plunging toward the zero line. Recession is imminent.
It is unlikely that the BLS will soon be able to report lower unemployment rates. Once the unemployment rate reaches 4.3 percent, the crossover will have occurred, and a recession is guaranteed. For more details on today’s report, see zerohedge.com.
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