Figure 11-3: Employment’s lagging relationship to consumer spending (PCE)
Over many cycles, 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. This suggests that 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.
Current Comment: Employment growth (green line) in the 2003-2006 recovery has been in line with to somewhat less than in past recoveries and, as always, has followed the upward path of consumer demand—the economy’s key driver. Stable employment growth at the recent 2% (year-over-year) rate is likely to continue a long as growth in consumer spending holds up.
