Chart of the Day: The K Shaped Recession

Red Flag: University of Michigan Unemployment Indicator Approaching Record High

The preliminary November results of the University of Michigan Consumer Sentiment survey show a renewed deterioration in household confidence. The headline sentiment index fell to around 50.3, near its lowest level since mid-2022, as consumers grow increasingly worried about jobs and income prospects.

The chart below tracks the survey’s labour-market sub-index, the balance between respondents expecting more unemployment versus less unemployment. It has now climbed to a new cyclical high, a level last seen before the 2001 and 2008 recessions. Historically, once this indicator breaches the 40–50 range, the unemployment rate follows with a lag of roughly two quarters.

At today’s readings, households are effectively pricing in an unemployment rate of around 5–5.5%, consistent with pre-recession conditions. In other words, this is no longer noise, it’s a clear warning that…