When Unemployment Becomes 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.

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 depression 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

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Comment by Matt Blackman

2009-10-28 23:29:13

Good information. As I see it, its not the nominal rate that matters, its the rate of change… and that change is declining… surprising given the trillions being pumped into the economy here and elsewhere. Also surprising how well Treasury bonds continue to sell…. $7 trillion so far this year thanks to falling maturing times…

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Comment by Matt Blackman

2009-10-28 23:34:02

Question - WTF does the chart you posted have to do with the unemployment rate? Consumer confidence is like Ricochet Rabbit, it hasn’t a clue what its doing or where its going… consumers are fickle. Can you show me any data that supports it as a trading indicator? I certainly can’t.

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