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), at economic peaks typically reaches its most favorable (lowest) level a year or more after peaks in year-over-year consumer-spending growth (black line) has slowed. In other words, it continues, deceitfully, to suggest a strong economy well after economic growth has begun to deteriorate.
Conversely, in all cycles, at economic troughs 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: The unemployment rate’s dogged resistance to improving following the moderate 2009-2010 rebound in consumer spending and the rest of the economy has been quite unusual, a clear manifestation of fear following the 2008 financial meltdown and the extent to which new jobs in this recovery have been exported abroad.