A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.



Unemployment Rate Unexpectedly Rises

JAN HOPKINS: Today's employment report sent a jolt through the market. As we reported, the unemployment rate went up to 6 percent in April. It's at the highest level in nearly eight years. Joining us now is Lakshman Achuthan. He's managing director of the Economic Cycle Research Institute.

So, should we be concerned about this? Is this telling us that the economy that we thought was recovering is losing the recovery?

LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INSTITUTE: You have to be concerned when you have a higher than expected unemployment rate. But I think it fits, when you have a cyclical perspective. We had a recession. We have a rise, a recessionary rise, in the unemployment rate. And that is -- should not be a surprise to anyone.

I think it should not -- the unemployment rate should not give people pause as to the durability of this recovery. This recovery is very much on track. In the report today also, we saw that jobs were created. That does not typically happen during a recession. That happens during a recovery.

HOPKINS: So basically what happens is that companies first lay off, and then when they feel a little more secure, they start hiring?

ACHUTHAN: They start hiring.

HOPKINS: We aren't at that stage yet, is that it?

ACHUTHAN: No, companies aren't so secure because they've lost more money in terms of profits. The decline has been larger than any of the managers have seen in over six decades. So it's going to take a persistent recovery for them to start feeling more confident about hiring people.

You see temporary workers are up. And so you see they're having to respond to a recovering economy. But to make that commitment to full-time employment may take longer.

HOPKINS: So some of those temporary workers could be hired full- time in the future?

ACHUTHAN: Oh, I fully expect that they will be, because I don't expect a double dip recession here. I think this is a very durable recovery. It is spreading.

Also in today's report, if you look, there's a statistic called the employment diffusion index. And that tells you how many industries, across 350 industries, are hiring. And that's continuing to rise. It's over 50 percent. It shows you it's becoming a more pervasive recovery. Again, it's durable.

HOPKINS: Now, we had a story at the very beginning of the program about people that are twice unemployed. They got a new job and they already have lost the new job. I mean, is that a normal thing to happen or is this disturbing?

ACHUTHAN: I think it's certainly disturbing. Maybe there's some transition going on from one industry to another industry. There was overcapacity in one industry, and not enough capacity in another and so we're having some shifts, and that takes some time.

However, I think the message is very clear when you look at it from a cyclical perspective. The leading indicators are not pausing. They are telling you this is a very durable recovery.

We should not expect a perfect recovery, just a V-shaped perfect recovery, following the so-called perfect storm that was a recession. I mean, I think that's wishful thinking. It's not going to go in a straight line. We are going to hit some bumps.

But I think the message remains: recovery is here. I expect that the unemployment rate will not go much higher. It's going to start recovering as the year progresses.

HOPKINS: And interest rates won't go higher anytime soon?


HOPKINS: That's the good news, right?

ACHUTHAN: Leading indicators of inflation are down across the world.

HOPKINS: Thanks very much, Lakshman Achuthan.

ACHUTHAN: Thank you.