The reality is we are almost certainly in a recession right now. Friday's employment figures join a long line of coincident indicators supporting that conclusion.
Take unemployment. The historic data supports unemployment as a lagging indicator, especially for recoveries. For recessions, it has historically been a coincident to lagging indicator. A quick look at the 2001 recession shows what I mean. The following graph shows unemployment (red) and the S&P 500 (blue) from October 1999 to December 2003.
First let's focus on unemployment. From October 1999 to December 2000, the unemployment rate was between 4.1 and 3.9 every month. No leading indication that the economy (or the market) was about to turn south. During the official recession, March-November 2001, unemployment moved from 4.3 to 5.5.
Even after the economy started to recover, employment kept getting worse. Unemployment didn't actually peak until June 2003 at 6.3%, two full years after the recession was over.
So what's my point? The utility of an economic indicator, as a trader, can come in two ways. Either the number has predictive value, or correctly predicting the number can indicate how to trade the market. In other words, either you can use the number as an input predict future events. Or you can try to predict the number itself and then trade the market accordingly.
The last point is what I call the Crystal Ball test. That is, if you could be given advance knowledge of an economic statistic, say 6-months out, would that knowledge give you a trading advantage?
The 2001 recession shows that unemployment fails this test. Notice the two red shaded areas. In both cases unemployment was stable, but the stock market was falling precipitously. Then in the green shaded area unemployment takes another leg higher, yet the stock market rallied sharply.
Conclusion? During the last recession, unemployment predicted nothing useful to investors. Even had you been given a crystal ball and knew for a fact what future unemployment figures would be, it still wouldn't have consistently indicated the right market trade. In fact it often would have given you the wrong indication.
Of course, there is no sense denying reality. The first Friday of each month, when employment statistics are released, has become a high volatility day. So its a fact that employment is a market mover in the short term. But I strongly caution investors against putting too much weight on rising unemployment. The market is always forward looking, and may already be looking past ugly employment numbers.