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Davide Buccheri: Inactive population as an indicator of recessions

| Categoria: Attualità | Articolo pubblicato in Spazio Aperto

One of the metrics used the most to evaluate the health of an economy is the unemployment rate.

In this article we discuss about this variable with Davide Buccheri, an expert about Capital Markets.

“The unemployment rate is probably not the best place to start. The problem is that it only accounts for those who are currently looking for an occupation. There is a huge amount of people who at this moment are out of the workforce, but are not accounted for by the unemployment rate. These are definitely resources that are not contributing to the GDP and are certainly a very good indicator of how healthy a country is. Surely much more solid than the unemployment rate.”

“In addition, the unemployment rate is at best a concurrent signal of a recession, but it doesn’t help us to predict them in any way, shape, or form. A much sturdier starting base can be obtained from official statistics. We just need to take the unemployment rate out of the participation rate and then subtract this from the whole population aged between 15 and 65. What we’re left with is the sum of all those people aged between 15 and 65 who currently are not in a job. It includes the unemployed, students, housewives and all of those who are not in an occupation for whatever reason.”.

“The real strength of this metric is that it tends to predict recessions with a very good degree of precision. The only instance in which it failed to do so, it still went up concurrently with the recession, giving us important information, way ahead of official GDP numbers.”

“It is therefore positive to see that at the moment this metric is not showing any signs of weakness, at least for the US. Instead, the economy appears to be in a very healthy state.”

In light of this, it would therefore seem that the economy might have space to continue on its growth path for some time

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