What Happens to HY Credit Spread (OAS) When Unemployment Rises?
What happens when the unemployment rate rises? Consumer spending impacts, market reactions, and the economic feedback loop explained.
How HY Credit Spread (OAS) Responds
Scenario Background
Rising unemployment is one of the most consequential economic developments because it strikes at the heart of the consumer-driven US economy, where consumer spending accounts for roughly 70% of GDP. When job losses mount, the affected individuals immediately cut spending, but the fear of job loss also causes employed workers to increase precautionary savings, reducing aggregate demand even before they personally lose their jobs.
Read full scenario analysis →Historical Context
In the 2008-2009 recession, unemployment rose from 4.7% to 10.0%, peak to trough, over 22 months. In the 2001 recession, it climbed from 3.8% to 6.3%. The 2020 COVID shock sent unemployment to 14.7% in a single month before a historically rapid recovery. In each case, the initial rise in unemployment from the cycle low triggered the Sahm Rule recession indicator. The recovery pattern varies: the 2020 labor market recovered to pre-recession levels within 2.5 years, while the 2008 recovery took ov...
What to Watch For
- •Initial jobless claims rising above 250,000 per week for 4+ consecutive weeks
- •Continuing claims rising above prior-year levels
- •JOLTS job openings declining below 8 million
- •Layoff announcements from major employers increasing
- •Temporary employment declining for 3+ consecutive months
Other Assets When Unemployment Rises
Other Scenarios Affecting HY Credit Spread (OAS)
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