My judgmental unemployment forecast with adaptation level:
Regardless of the fact that the unemployment rate is hardly the best indicator of labor market health, I assume it dominates people’s perception of labor market health, and that when it increases above an adaptation level formed by recent experience, confidence fails. My best guess as to when the unemployment rate will cross above its adaptation level continues to be about halfway through next year, when America will experience an accelerating collapse of confidence. Animal sprits will remains depressed until 2016 or so.
The situation continues to resemble the 1973-1974 period, especially with regard to the configuration of the Michigan consumer sentiment series and my imputed confidence measure. One thing that my measure has done fairly consistently is to signal the onset of NBER-defined recessions when unemployment rises above adaptation level.
After period doubling in the ‘Eighties, ‘Nineties, and Oh-Oh decades, the American business cycle seems to have reverted to a possibly chaotic shorter pulse more characteristic of the earlier postwar business cycle.