New Evidence of Impending Recession

Conventional leading economic indicators have been predicting a recession for some time now (e.g. yield curve inversion, durable goods orders, consumer confidence…). The latest jobs report contains data on an unconventional leading economic indicator. The ratio of private to public employees peaked leading into every modern recession.

This makes economic sense; the profit motive makes private employers more sensitive to labor costs in a slowing economy. The private-public employment ratio (PPER) statistic is more consistent, less volatile, than some conventional economic indicators. The PPER peaked in December 2022; it has been falling for half a year now.

Of course, past patterns don’t always predict the future. Yet the PPER seems reliable; it could prove to be just as good, or even better than, conventional leading indicators. Other macroeconomists should consider PPER data.