Employment Lags the Stock Market 24 comments
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There is really no debate about the point that unemployment levels lag the stock market. The data is clear on this. Even if one wants to challenge the accuracy of the level of unemployment, the trend is the same. This past Friday saw the passing of the level of 10% unemployment in America. This level was thought to have been a severe psychological barrier to market participants and the market had sold off the two weeks previous in anticipation of that result. The number was announced on Friday morning, and....nothing. The market barely reacted. And for good reason.
In each of the past six recessions, regardless of cause or severity, the stock market led the recovery in employment by 4-9 months. Examples of the stock market bottom followed by the peak level of unemployment in each cycle include: June 1949 vs. November 1949 (5 months), September 1960 vs. May 1961 (8 months), September 1974 vs. May 1975 (8 months), June v. December 1982 (6 months), November 1991 vs. June 1992 (7 months) and February vs. June 2003 (4 months). It stands to reason that the more severe the recession, the higher the level of unemployment and the longer it will take for the employment cycle to reverse direction. This can be seen in the data as the longest recovery lags were the severe 1974-75 recession and the 1960-61 recession.
The current recession is the deepest since the 1930s (for which there are no government employment series to compare with the current event). But if the stock market started its recovery in 1974 eight months prior to employment recovery in 1975, it is reasonable to expect an even longer lag in this recovery, perhaps a year.
By March 2010, we should see employment levels improving and unemployment rates declining. Any recovery between now and then is a bonus. There should be no expectation that we see increasing employment rates between now and year end.
The source of my data is the FRED data bases maintained by the St. Louis Federal Reserve. Check it out here for more info.
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This article has 24 comments:
bls.gov/news.relea...
once the stimulus effect is over and demand not likely to coming back any time soon, companies will start another round of retrenchment. Employment numbers may not improved and continue downwards. Of course you may be right that increasing unemployment might not happen at that time. By then the second stimulus package will be implemented to prolong this agony. Subsequently Inflation (or worst Stagflation) will be the most likely outcome.
And the stats have been manipulated anyway, the rate is a lot higher than 10.2%
I refer you to last week's Wall Street Journal:
"The time-worn Wall Street gospel is that employment is a lagging indicator, but that isn't always so. It has only lagged significantly in the recoveries that followed the past two recessions. In the eight recessions between World War II and 1982, payrolls bottomed and unemployment peaked, on average, less than one and two months, respectively, after the recessions ended. Assuming, as most economists do, that the latest recession technically ended in June 2009, this recovery already is looking jobless."
online.wsj.com/article...
Bonus? Is that the term?
I'd love to see JUST ONE MORE job dissapear................
We should be so lucky.
How about hello Mexico.
Until such time as this internal rot is weeded out and dealt with there will be no fair recovery, let alone change. Yes we can? So far, there has been no sign of the status quo being upset. Yes we can - what? Continue to rob the masses of their children's birthright? Certainly seems so!
On Nov 08 10:02 AM logicalthought wrote:
> >>There is really no debate about the point that unemployment levels
> lag the stock market.<<
> .html
On Nov 08 11:45 AM Mad Hedge Fund Trader wrote:
> cgi Ouch! Another 190,000 jobs went down the crapper in October,
> taking unemployment rate to a new 27 year high of 10.2%. Add in discouraged
> job seekers, and that puts the jobless rate at gut churning 17.5%,
Buying power has been greatly diminished to those that have found another job, so they may not be counted on the "unemployment rolls" - BUT they have had to accept a lesser-paying job which translates into a lower standard of living.
That is what is happening in many industries including white collar and IT jobs and it is not being spotlighted by those supposedly "in the know".
Why is that? Is it because you are totally clueless that that is happening OR is it no one wants to be politically accurate?
You cannot tell me things are getting better if people who were making $100K-$150K are now taking jobs at $40K-$50K.
Until that is factored into all these "projections", if you're trying to comment on our economy, as Rodney Dangerfield said, How about Fantasyland!"
On Nov 08 07:00 PM JAMES CARLINI wrote:
> Please make a distinction between unemployment and UNDEREMPLOYMENT
> when you talk about "recovery" and positive economic impact. What
> are the REAL percentages?
>
> Buying power has been greatly diminished to those that have found
> another job, so they may not be counted on the "unemployment rolls"
> - BUT they have had to accept a lesser-paying job which translates
> into a lower standard of living.
>
> That is what is happening in many industries including white collar
> and IT jobs and it is not being spotlighted by those supposedly "in
> the know".
>
> Why is that? Is it because you are totally clueless that that is
> happening OR is it no one wants to be politically accurate?
>
> You cannot tell me things are getting better if people who were making
> $100K-$150K are now taking jobs at $40K-$50K.
>
> Until that is factored into all these "projections", if you're trying
> to comment on our economy, as Rodney Dangerfield said, How about
> Fantasyland!"
That would be apples to oranges my friends.
On Nov 08 10:02 AM logicalthought wrote:
> >>There is really no debate about the point that unemployment levels
> lag the stock market.<<
>
> I refer you to last week's Wall Street Journal:
>
> "The time-worn Wall Street gospel is that employment is a lagging
> indicator, but that isn't always so. It has only lagged significantly
> in the recoveries that followed the past two recessions. In the eight
> recessions between World War II and 1982, payrolls bottomed and unemployment
> peaked, on average, less than one and two months, respectively, after
> the recessions ended. Assuming, as most economists do, that the latest
> recession technically ended in June 2009, this recovery already is
> looking jobless."
>
> online.wsj.com/article...
1. The credit crunch and threatened meltdown of the global financial system in the last quarter of 2008 was a unique experience within the adult lifetime of most investors and persons managing companies and created an unaccustomed type and degree of uncertainty in these groups that is slow to lift. The fact that the crunch was ended and meltdown avoided in fairly short order, while welcome, doesn’t alone allay their fears.
2. The nature and extent of fiscal and monetary stimulus that was judged necessary by governments and central banks to end that crunch and avoid that meltdown was itself viewed as unorthodox and risky by many persons managing companies and investors and this also prolongs their sense of deep caution.
When referring to ‘investors’ above, reference was being made to those prepared to invest in company expansion on a middle or long term basis, not speculators prepared to buy and sell from day to day.
I hope I’m wrong about the prospect of further recovery delay.
Also, my family wanted to eat out on Friday. We wanted Mexican. The first restaurant had people lined up out the door waiting for a table. We went to the other Mexican restaurant in our city. Business was booming there too, but we were able to get a table. Looking around at all the people spending $30-$40 on their meals really made me start wondering if things were getting better. We live in a very blue collar, factory worker, Wal-Mart kind of a county. This is the kind of a place you'd expect people to really be hurting. I'm just not seeing it though. We ate at the same place six months or so ago and it was like a ghost town in there.
Also, my teenage son just got a job at Pizza Hut. My mom, who was laid off in Virginia, just got another job.
When the economy starts to improve, no one is going to hang some huge sign in the sky for us all to know it. It'll start slow and gradually pick up steam. Only later will we start to "feel" like the economy is recovering.
So, I agree with the author. We are recovering now. Maybe next year we'll start to "feel" it and see it in the numbers.
Quick question, sir.
Check your street and tell me when the last ivory tower sold and for how much. I think you are in for a shock....................
On Nov 08 04:33 PM Brian McMorris wrote:
> I really don't care what some reporter at WSJ said. I did independent
> research using government stats and posted the evidence. If you want
> to go with someone's unqualified opinion against the facts I presented
> by researching historical data obtained at the Fed website, that
> is your choice.
How many of the last 6 recessions were debt-based ?
It's not that "It's different this time", because it is not. You just have to be comparing debt-recession to debt-recession. Then, it's not different.
This is not a recession caused by the usual and very normal expansion and contraction of the economy (breathe in, breathe out). This is the only recession since the Great Depression that has been caused by too much credit/debt.
Credit is contracting at record rates, Fridays are now "Bank Closing Fridays", and we are nowhere close to resolving the matter of massive debt of either the consumer or the government.
CRE is collapsing, and the Fed has just given banks permission to play bookkeeping games with it, just like with housing. Millions of the jobs that have been lost are never coming back, and the consumer is not spending. Banks are not even bothering to foreclose these days, because they don't want to have to write off the loan. And they don't want to maintain the property, either-- they have more houses than they know what to do with. And all of those defaults that set records in the last several months are coming on the market early next year.
We have barely even started the deleveraging process, because our politicians believe they can spend trillions of dollars to keep things in a state of limbo until the economy "turns around". But it can't start turning around until we deal with the debt.
Government spending does not really create GDP-- it is faux GDP.
One way or another, we are going to have to take our medicine. Only then we will start the recovery.
On Nov 08 07:46 AM drewriders wrote:
> Great article!! I wish I had know about this about 2 years ago.
> Would have saved me alot of financial pain. Seems it takes about
> 5 or 10 years for unemployment numbers to come back to a 'full employment'
> level before the next bear market begins.
On Nov 08 09:27 PM Tomcat101 wrote:
> I'm a Human Resource Mgr. in North Carolina. We've been under a hiring
> freeze for about a year, only filling the most critically needed
> positions. Within the last couple of months we have started hiring
> again, enough so that it is stressing me out with all of it hitting
> at once. I'm not gonna say it's a flood of new hiring, but they have
> defintely turned on the faucet, whereas before it was only an occasional
> drip.
>
> Also, my family wanted to eat out on Friday. We wanted Mexican. The
> first restaurant had people lined up out the door waiting for a table.
> We went to the other Mexican restaurant in our city. Business was
> booming there too, but we were able to get a table. Looking around
> at all the people spending $30-$40 on their meals really made me
> start wondering if things were getting better. We live in a very
> blue collar, factory worker, Wal-Mart kind of a county. This is the
> kind of a place you'd expect people to really be hurting. I'm just
> not seeing it though. We ate at the same place six months or so ago
> and it was like a ghost town in there.
>
> Also, my teenage son just got a job at Pizza Hut. My mom, who was
> laid off in Virginia, just got another job.
>
> When the economy starts to improve, no one is going to hang some
> huge sign in the sky for us all to know it. It'll start slow and
> gradually pick up steam. Only later will we start to "feel" like
> the economy is recovering.
>
> So, I agree with the author. We are recovering now. Maybe next year
> we'll start to "feel" it and see it in the numbers.
I'm just not seeing anything here that makes me think of gloom and doom.
On Nov 09 03:01 AM JMBishop wrote:
> You must live near a military base.
The 1980-82 recession was debt related and the trigger was high interest rates caused by inflation in the 1970s and so on.
I have seen this lame argument many times on this site and others. It is not well thought out. Yes, this is the deepest recession since the 1930s, so, yes, this recovery will take much longer than others. I have already made that point in my post. If the recession lasted 18 months which is twice the average, the recovery will take longer to take hold and will also last longer.
Otherwise, the same mechanics as past recession are in play this time, including government response. Yes, it was a much greater government response, but it was proportionately so. It takes a greater response to deal with a much bigger recessionary event.
>How many of the last 6 recessions were debt-based ?
It's not that "It's different this time", because it is not. You just have to be comparing debt-recession to debt-recession. Then, it's not different.<