The economy goes up and down, as does the unemployment rate with it. As the economy improves, more hiring, more capital investment, and more available credit is the tide to "rise all boats." You see this virtuous cycle in effect as the unemployment rate typically declines for 3-7+ years during an economic expansion. But it takes a much shorter time to lose those jobs once a recession hits...

As the unemployment rate gets better and better, things start to change... the Fed is squeezing the yield curve spread lower, making profitable long-term lending and investing more difficult. The unemployment rate is low, and businesses have a difficult time finding qualified employees at a reasonable cost. Business pull back on capital investment. The unemployment rate tends to bounce around near prior lows, then a recession starts. And job losses happen more quickly in a recession than job gains in an expansion. We see this in the national data, and in our largest states' unemployment rates.

These swings are what cause the economic cycle, and can be seen clearly in the unemployment rate over time. Values tend to revert above and below the mean, and tend to revert upward once they reach historic lower bounds. These lower bounds (in red) were inserted manually by myself in the graph, and represent my perspective on when the unemployment rate tends to stop improving, and time is ticking until there is another recession.

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© 2016 by A J Martin Company

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