Unemployment Has Become a Leading Indicator

The traditional economic orthodoxy suggests that unemployment is a lagging indicator, since firms do not begin hiring until they are sure a recovery has begun. However, the length and depth of this recession has resulted in unemployment morphing into a leading indicator.

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Consumer confidence can be viewed as a leading indicator for potential demand, but the report released on Tuesday contained some of the worst data in the 40 year history of the index. The primary reason for the decline in confidence is the belief that jobs are hard to get. To be sure, this is precisely why unemployment is a lagging indicator: Because even though there is economic improvement firms have yet to hire, thus depressing the consumer.

The difference this time is that the length of the recession has resulted in consumers adjusting buying expectations. According to the Conference Board, buying plans for cars and appliances have all been revised down by the consumer. This was reflected in the durable goods orders and may be reflected in the GDP report to be released Thursday.

Disclosures: None

Comments

[chris coonan:]

Metrics are flipping due to the severe nature of the economic fall. This isn't your standard downturn.

Unemployment is now Chronic, and the statistics can't keep up with the reality, as more and more are dropping off the radar due to giving up.

Unemployment can, and likely will cause States like California to go completely insolvant.

Oct 29 05:47 AM

[Daniel Herkes:]

I agree. At this time unemployment is not a lagging indicator. The last time this was the case, was - when? 1932?

Oct 29 06:47 AM

[bbro:]

The gap between net corporate cash flow and business spending
is at historic wides.....this will not stay that way....businesses will spend what is in the till and guess what Jobs will come....and you don't
need a significant increase to have it happen.....

Oct 29 06:49 AM

[Dave Wrixon:]

It can be both, but the difference is important because lagging indicators tell us nothing. It certainly have very pronounced secondary effects. Unemployment stops both consumers consuming and industry investing. It is just a question of timing. With consumers they fear unemployment even before it happens. It is that fear that stops them spending. They don't actually have to lose their jobs, they just need to have sufficient fear that they might. Investment by contrast tends to be much longer term. Investment is generally aimed two or three years ahead. Projects come on stream that were initiated three or four year ago. Often current economic climate often has little impact. They are not going to abandon long-term market position for short-term market conditions. It is perception about future competitive environment including tax and interest rate burdens that has most impact on their thinking.

Oct 29 07:04 AM

[yblarrr:]

Rather than giving all the money to the banks they should be setting
up the old CCC camps. Paid the workers a good wage plus
benefits. This would get the economy moving again for sure.

The banks are just holding the money and collecting their
3.5 from you and me. It really sucks!

Oct 29 07:34 AM

[bbro:]

this is not 1932....


On Oct 29 06:47 AM Daniel Herkes wrote:

> I agree. At this time unemployment is not a lagging indicator. The
> last time this was the case, was - when? 1932?

Oct 29 07:44 AM

[bbro:]

Let's see Tarp money getting paid back while Iraq takes 2 billion a week
from you......


On Oct 29 07:34 AM yblarrr wrote:

> Rather than giving all the money to the banks they should be setting
>
> up the old CCC camps. Paid the workers a good wage plus
> benefits. This would get the economy moving again for sure.
>
> The banks are just holding the money and collecting their
> 3.5 from you and me. It really sucks!

Oct 29 07:46 AM

[doubleguns:]

This is not 1932, its worse this time, our money is no longer backed by gold so they can print as much as they want, and they have.

There is a housing crisis to go with unemployment, we are in in a war that the president has no intentions of winning, the administration is doing nothing to create jobs and they are pissing money away to buy future votes and pay for votes already cast, stimulus was a joke it stimulated nothing, and we started into this mess with an enormous debt both public and private and our govt is adding to that debt at ridiculous spending levels while they attempt to sucker the consumer into spending more money.

Absolutly this is not 1932.

Oct 29 08:36 AM

[FB5000:]

No it isn't

To assume it has assumes that human nature and the business cycle has changed. It hasn't.

Get real.

Oct 29 08:53 AM

[Alphameister:]

This has become an increasingly popular idea by those seeking to offer a provocative insight. Unemployment is inherently a lagging indicator by the nature of the business cycle. Unemployment always has negative consequences, so it "leads" in that respect, and in a sustained period of weakness that "leading" element becomes more evident, but the fact remains that unemployment will be among the last of the major economic indicators to experience meaningful improvement, thus continuing to warrant its inclusion among the lagging indicators.

Oct 29 09:02 AM

[robert.b.fe...:]

Ditto


On Oct 29 08:36 AM doubleguns wrote:

> This is not 1932, its worse this time, our money is no longer backed
> by gold so they can print as much as they want, and they have.<br/>
>
> There is a housing crisis to go with unemployment, we are in in a
> war that the president has no intentions of winning, the administration
> is doing nothing to create jobs and they are pissing money away to
> buy future votes and pay for votes already cast, stimulus was a joke
> it stimulated nothing, and we started into this mess with an enormous
> debt both public and private and our govt is adding to that debt
> at ridiculous spending levels while they attempt to sucker the consumer
> into spending more money.
>
> Absolutly this is not 1932.

Oct 29 09:05 AM

[robert.b.fe...:]

We aren't even being given accurate unemployment numbers by these spin doctors. As some one said unemployment has become chronic and many who's benefits have run out are no longer being counted. These poor folks are still unemployed and they have not fallen off the face of the planet and most have not left the country. Has Michigan filed for bankruptcy protection yet?

Oct 29 09:10 AM

[Teutonic Kn...:]

Yes, Brian, I concur with you.

As I see it, the Unemployment scenario is playing as a form of wealth transfer, after all the talks about inflation, deflation, stagflation, depression, Greatest Depression, Great Recession, etc.

The Fed and the Obama regime will do their utmost to keep rates at or around 0% forever (till Kingdom comes though). The dollar will remain the reserve currency and nations around the world will forbid it to devalue since they will race to devalue their own.

The pain will have to come out of Unemployment. A lot of folks, ordinary citizens, corporations, and even governments (bail out funds evaporating) lost a lot of money.

So where would the money come from to make up for the losses?

It comes out of the pockets of the poor unemployed folks without a paycheck - they are, in fact, being robbed in broad daylight by the "you know who".

TK

Oct 29 11:56 AM

[mb2:]

I disagree. Employment is still a lagging indicator. The markets are simply ignoring reality.

Oct 29 01:10 PM

[mb2:]

Will the American voters do something about? That's the question I want answered...


On Oct 29 09:05 AM robert.b.ferguson wrote:

> Ditto

Oct 29 01:12 PM

[Tesa:]

Unemployment can be a lagging indicator and still not respond to low interest rates and asset subsidy to reverse its trend.

Only when the industries and financial markets are going to take advantage of cheap money by hiring people will the unemployment trends reverse themselves.

Given that making money has become function of flipping assets and handing the losses to the population rather than industrial output, the unemployment will not respond to cheap money. Why would industries invest money in industrial output when they can extract massive amount of easy cash from the government by just investing!

Oct 29 02:30 PM

[Teutonic Kn...:]

Unfortunately, not, in my view. The American voters are pretty docile, right now at least.


On Oct 29 01:12 PM mb2 wrote:

> Will the American voters do something about? That's the question
> I want answered...

Oct 29 06:26 PM