US Unemployed to Employed as Indicator of Job Market Health
In this chart, we use the following symbols: 
USNFP, UNEMPLOY
USNFP represents the number of jobs created in a month. UNEMPLOY represents the number of unemployed individuals for a month.
Assuming exactly 1 payroll per person, the ratio 100 *USNFP / (UNEMPLOY + USNFP) estimates the percentage of previously unemployed individuals who transitioned to employment in the month. If enough jobs are created, the current UNEMPLOY should equal the previous month's UNEMPLOY minus USNFP, as the jobs created should correspond to the unemployed who found work.
When sufficient jobs are created, the number of unemployed decreases, and the ratio increases. A "healthy" value for this ratio is around 2.5%, indicating that approximately 2.5% of unemployed individuals transition to employment each month.
Conversely, if insufficient jobs are created, the number of unemployed rises, and the ratio decreases. Ratios around 0% or negative values are usually observed during or before recessions, indicating an unhealthy job market.
For last two consecutive months, the ratio has been 0.17%, suggesting an unhealthy job market. Similar patterns were observed before the DotCom and GFC recessions. If this trend continues for several months, it strongly suggests that the US is either on the verge of or already in a recession.
Historically, when the 30-week SMA crosses below the 50-week SMA, it signals a recession. This signal was triggered in June '24.
USNFP, UNEMPLOYUSNFP represents the number of jobs created in a month. UNEMPLOY represents the number of unemployed individuals for a month.Assuming exactly 1 payroll per person, the ratio 100 *
USNFP / (UNEMPLOY + USNFP) estimates the percentage of previously unemployed individuals who transitioned to employment in the month. If enough jobs are created, the current UNEMPLOY should equal the previous month's UNEMPLOY minus USNFP, as the jobs created should correspond to the unemployed who found work.When sufficient jobs are created, the number of unemployed decreases, and the ratio increases. A "healthy" value for this ratio is around 2.5%, indicating that approximately 2.5% of unemployed individuals transition to employment each month.
Conversely, if insufficient jobs are created, the number of unemployed rises, and the ratio decreases. Ratios around 0% or negative values are usually observed during or before recessions, indicating an unhealthy job market.
For last two consecutive months, the ratio has been 0.17%, suggesting an unhealthy job market. Similar patterns were observed before the DotCom and GFC recessions. If this trend continues for several months, it strongly suggests that the US is either on the verge of or already in a recession.
Historically, when the 30-week SMA crosses below the 50-week SMA, it signals a recession. This signal was triggered in June '24.
Note
It is worth noting that this ratio explains the sharp increase in unemployment during recessions. As the number of unemployed individuals rises, more and more payrolls need to be created each month to keep unemployment stable. However, before and during recessions, the number of new payrolls decreases rather than increases, leading to a non-linear surge in unemployment.
Is the latest NFP figure of 227K good? Even if it is not significantly revised downward, it is far from sufficient according to the ratio. While the September NFP report was strong, the two subsequent reports are not. We need approximately 500K new payrolls per month to prevent unemployment from rising.
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