U of O Index of Economic Indicators - August 2010

Professor Duy released the U of O Index of Economic Indicators for August this week.

The University of Oregon Index of Economic Indicators™ edged down 0.2 percent to 86.3 (1997=100) in August. Compared to six months ago, more than half the index components declined while the UO Index fell 5.9 percent (annualized). In the past, declines of this magnitude signaled impending weakness in Oregon nonfarm payrolls.

As a general rule of thumb, a decline of 2.5 percent (annualized) over six months, coupled with a decline in more than half of its components, signals that a recession is likely imminent.

On the job market

Weak economic conditions continue to weigh on labor markets. Initial unemployment claims rose again, continuing the upward drift that began in April. Employment services payrolls—largely temporary hiring—were essentially unchanged. Both trends are disappointing and signal that despite being in a recovery phase, the pace of economic activity continues to fall short of that necessary to generate solid job growth. Overall nonfarm payrolls for Oregon (not included in the index) fell 1,500 compared to a revised loss of 2,100 in July, while the unemployment rate held at 10.6 percent.

A little more bad news…

The UO Index continues to follow a pattern similar to its behavior in the 2001–3 period. The 2001 recession was followed by a sharp but temporary upturn in the UO Index. A subsequent reversal of gains signaled renewed economic weakness. The resulting “echo” recession triggered a renewal of job losses, albeit the declines were not as severe as those of the 2001 recession. Assuming the pattern is repeating itself now and is not reversed soon, the UO Index signals that, at a minimum, sustained labor market recovery will be delayed until next year with actual job losses possible over the next three to six months.