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Employment is a lagging indicator: the proof (1)
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Figure 11-3: Employment’s lagging relationship to consumer spending (PCE)
Figure 11-3
This chart tracks Y/Y % employment growth (as opposed to the unemployment rate, the most widely reported jobs measure). Over many cycles, Y/Y employment growth has proved to be a lagging indicator of consumer spending, typically peaking a year after consumer spending and bottoming six to twelve months after the trough in consumer demand.* It is evident in this chart that peaks and troughs in employment follow, rather than lead, those of consumer spending. Because of this, every economic recovery, in its early stages, appears to be a “jobless recovery.” Even though employment does have some secondary causality in driving consumer demand, it should never be used as a primary indicator in forecasting consumer spending.

*This reflects, logically, the fact that workers are hired as and after the economy improves and laid off as and after the economy deteriorates. Despite this, a surprising number of economists use employment as the dominant element in their forecasts of consumer spending.
Current Comment: Not surprisingly, employment growth (green line) in late 2009 experienced its worst Y/Y declines (4%) in the history of this chart. Nevertheless, and predictably, employment returned to positive Y/Y comparisons in late 2010 resulting from (1) the modest uptrend in consumer spending with its salient effects on the general economy and (2) comparison with the deep employment declines of 2009. However, the rate of growth in employment in the recent recovery fell far short of that in previous periods. Nevertheless, employment is still growing and helping to sustain growth in consumer spending.
Sources: Real personal consumption expenditures: Bureau of Economic Analysis Civilian employment level: Bureau of Labor Statistics
Updated: 6/1/14