The latest unemployment data were remarkably strong. Unemployment continues to be low, while the number of vacancies remains quite high.
Unemployment will be the last place we will see signs of a recession. During the early stages of a slowdown, firms tend to hold on to workers, which invariably have firm-specific skills. It is costly to fire staff, especially if you have spent time and money training them to work for you.
Today's unemployment numbers also point out a difficult truth about the housing crash. House prices are not falling because of anything happening labour market, which continues to operate at close to full employment despite credit difficulties.
Nevertheless, first quarter GDP data indicated that the economy is beginning to slow, and going forward, these numbers could begin to deteriorate. As people lost their jobs, mortgage default rates would rise, housing supply would increase and further weaken the housing market.
Nobody wants to see a rise in unemployment. Recessions are terrible events, and let us all hope we can avoid one. At the same time, if unemployment does begin to rise, we could see the housing crash being hit with a second, labour market related shock that could send prices crashing through the floor.