There are two quotes from economists I have always liked:
"The only function of economic forecasting is to make astrology look respectable." John Kenneth Galbraith
“The stock market has called nine of the last five recessions.” Paul Samuelson
Discussion of a looming recession has certainly picked up some steam among the chattering classes lately. So I was especially interested in the August jobs report for metropolitan areas, out earlier this week from BLS. Could it tell us anything about the likelihood of a recession?
Overall, there wasn't much of a shift from July to August in year-over-year performance among metropolitan areas. Total nonfarm job growth averaged about 1.8% in large metros (1 million+ jobs), very similar to where we were in July. The top five performers ranked by YoY percentage growth in August--Orlando, Dallas, Seattle, Phoenix, and Houston--did not change from July, although Phoenix and Houston switched places in the order. There were more metro areas with net declines in total nonfarm employment in August (48) compared to July (35), but that increase does not appear to be particularly notable given other recent month-to-month fluctuations on a year-over-year basis.
But one thing did jump out at me: Minneapolis-St. Paul was in the red, with a slight decline in total nonfarm employment in August compared to one year earlier. Now, since these are estimates and subject to future revisions and seasonal adjustments, that could be nothing. However, August was the fourth month so far this year with job losses on a year-over-year basis in Minneapolis-St. Paul (MSP). In fact, MSP has been treading water at less than one percent average monthly job growth on a year-over-year basis since 2018Q1.
Why should those of us outside MSP care? Here's why:
Economic cycles in MSP and the US economy as a whole tend to spin in the same direction at similar rates. Now, heeding the advice of our famous economist friends above, we need to be careful not to read too much into that--the US economy is the sum of our metro area and local economies, after all--but there is something about MSP that seems to signal what could be in store for the rest of us. It would be interesting to hear from an economist with MSP expertise weigh in here on my conjecture, but I do know that the region's economy is relatively diversified, with a fair number of Fortune 500 companies representing a cross-section of different industries. Perhaps that partially explains its representative standing for macro trends in the national economy.
Or, perhaps this strong correlation (.92) is simply a product of how the estimates for metro areas are calculated--all noise, no signal--or maybe a comparison of other indicators would reveal that the MSP and US economies are not that much alike after all.
Or maybe not. Even astrologists are occasionally on target.