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Figure 11-8: The unemployment trap: Unemployment and the bear market
Figure 11-8
As a substantially lagging indicator, the unemployment rate (green line), in cycle after cycle, appears most favorable (lowest/inverted) well after consumer-spending growth (black line) has peaked and the bear market (vertical yellow bars) has been under way for some time. Conversely, bear markets typically end long before the unemployment rate reaches its worst (highest) levels. Indeed, misplaced fears over the rise in the unemployment rate (a failure to recognize its lagging role) often help to fuel a selling crescendo in the stock market. Those who understand unemployment’s lagging—and therefore deceptive—nature will avoid this trap.
Sources: Real personal consumption expenditures: Bureau of Economic Analysis Civilian unemployment rate: Bureau of Labor Statistics
Updated: 10/3/15