Okun’s Law - the macro oddity that could matter now There can be no #recession without #unemployment and no expansion without strong job creation. So much so that this relationship generated an economic theory: #Okun's Law, named after the economist who postulated it, Arthur Okun, Professor of Economics at Yale University and an adviser to former US President John F. Kennedy’s Council of Economic Advisers. The theory links the concept of the ‘#employment gap’ and its relationship with economic growth, which is central to Okun’s Law. Under it, for instance, a 1% lower unemployment rate would result in 2% more economic growth. This week, Simply put looks at what this relationship indicates about US GDP growth in 2024. The chart below shows a dusted version of this relationship with an employment gap currently in the region of -1%. With that level, Okun’s Law infers that US real #growth should be exceeding its long-term trend. Our estimates show that this excess growth could be of as much as 1.3%, bringing 2024's expected growth to 3.2%. Is that already priced in markets? That's the one million Dollar question of the day. Read more here on Lombard Odier Investment Managers's website here: https://lnkd.in/eYSyPH4X #macro #multiasset
Mabrouk Chetouane
10mo
A brilliant way to use Okun's Law! Thanks Florian
CEFA EFFAS Financial Analyst
10moGreat again Florian, thanks for your insightful post. Let's add the following: https://www.linkedin.com/posts/enric-a-b7a68b172_lombardodier-usrecession-yieldcurve-activity-7160766130679095296-Dtiu?utm_source=share&utm_medium=member_android "When using a combination of probabilistic and deterministic models @Risk and StatTools, it is forecasted that the unemployment rate will remain below 5% for the next three years. There is a 90% probability that the #unemployment rate will stay between 4.06% and 4.84% during this time. ✅️It is worth noting that every recession in the past has coincided with an unemployment rate higher than 4.8% to 5.10%.