How the claims cycles coincide with recessions and S&P500 bear markets?
In previous cycles, Initial Claims rising from the bottom of the cycle practically preceded the beginning of the recession and then the bottom on the S&P500. In the current 2022-2024 cycle, Initial Claims increased from the bottom (September 2022) to February 3, 2024 by only 36k (and it took 16.5 months).
For example, in the 2006-2008 cycle from the bottom of Initial Claims (28-Jan-2006):
- until the recession start, Initial Claims increased by 68k (in 22.5 months), and
- to the bottom on the S&P500 Initial Claims increased by 378k (in 37.2 months).
In the 2000-2002 cycle from the bottom of Initial Claims (15-Apr-2000):
- until the recession start, Initial Claims increased by 134k (in 11 months),
- to the bottom on the S&P500 Initial Claims increased by 123k (in 29.8 months), but in this cycle we first had a peak on Initial Claims and only then a low on the S&P500.
In the 1989-1991 cycle from the bottom of Initial Claims (21-Jan-1989):
- until the recession start, Initial Claims increased by 85k (in 17.7 months),
- to the bottom on the S&P500 Initial Claims increased by 122k (in 20.4 months).
All the previous 7 cycles are presented in Figure 1. The chart is a bit difficult to read, so Figure 2 shows only the ranges of the (i) beginning of the recession, (ii) the bottom on the S&P500 and (iii) the peak of the Initial Claims upward trend - for each of the last 7 cycles.
However, the most interesting is Figure 3, which shows the same as Figure 2, but without the two outliers (in the case of the Initial Claims low, we omit the one from 1981; and in the case of the S&P500 low, we also omit the one from March 2009).
The current cycle is closest to the one from 2006-2008, when the Fed's pause was also very long (due to the strong economy). Back then, over 22 months passed from the bottom of Initial Claims to the entry into the recession (the longest of all 7 cycles). In the current cycle, 22 months will end only in August 2024.
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