Figure 11-6: The unemployment rate’s lagging relationship to real consumer spending (PCE)
The unemployment rate (green line), a substantially lagging indicator (shown inverted here, right scale), typically reaches its most favorable (lowest) level a year or more after the peak in year-over-year consumer-spending growth (black line). In other words, it continues, deceitfully, to suggest a strong economy well after economic growth has begun to slow.
Conversely, in all cycles, the unemployment rate continues to deteriorate (i.e., rise) well after a recovery in consumer spending has begun, fostering pessimism at a time when the economy has actually begun to improve. In this regard, all early-stage recoveries are “jobless recoveries,” a fact that many economist reporters never seem to learn.
Current Comment: It is no surprise, given the Unemployment Rate’s lagging relationship to consumer spending and the economy in general, that it reached its peak of 10.2% in late 2009, well after Y/Y real consumer-spending comparisons appear to have bottomed out and the stock-market recovery was well under way. If real consumer spending growth continues even at a modest rate in 2010, the unemployment rate will almost certainly fall, perhaps to as low as 8.0-8.5%, by the end of 2010.
