Unemployment as an Economic Indicator

The latest news on employment is in, and it looks as though the unemployment rate has hit a 26-year high at 9.7%. Even though the report shows that the pace of job losses is slowing, the fact remains that the economy is still shedding jobs. And many agree that employment is an important economic indicator. After all, it provides insight into how many people have jobs (or don’t), and that in turn provides a look at the health of businesses and individuals.

But how does unemployment work as an economic indicator?

According to The Mortgage Reports, it works as a lagging economic indicator. I thought this very interesting. It’s more of a snapshot of what was happening a few months ago than it is an accurate representation of what is happening right now. The Mortgage Reports offers these two interesting examples of how employment data lags:

Consider these 2 examples of employment as a lagging indicator:

1. Job losses peaked in January 2009 — 4 months after the September 2008 Financial Crisis
2. Job losses peaked in October 2001, 1 month before the 2001 recession ended.  Jobs finally turned positive in October 2002 — 12 months into the subsequent recovery.

So, in reality, the fact that employment data is a bit behind is something to take into consideration. And it also explains why the stock market isn’t freaking out today. In fact, stocks are on the rise.

Image source: david55king via Flickr