Undeniably Emploment Lags the Stock Market
There is really no debate about the point that unemployment levels lag the stock market. The data is clear on this. Even if one wants to challenge the accuracy of the level of unemployment, the trend is the same. This past Friday saw the passing of the level of 10% unemployment in America. This level was thought to have been a severe psychological barrier to market participants and the market had sold off the two weeks previous in anticipation of that result. The number was announced on Friday morning, and....nothing. The market barely reacted. And for good reason.
In each of the past six recessions, regardless of cause or severity, the stock market led the recovery in employment by 4-9 months. Examples of the stock market bottom followed by the peak level of unemployment in each cycle include: June 1949 vs. November 1949 (5 months), September 1960 vs. May 1961 (8 months), September 1974 vs. May 1975 (8 months), June v. December 1982 (6 months), November 1991 vs. June 1992 (7 months) and February vs. June 2003 (4 months). It stands to reason that the more severe the recession, the higher the level of unemployment and the longer it will take for the employment cycle to reverse direction. This can be seen in the data as the longest recovery lags were the severe 1974-75 recession and the 1960-61 recession.
The current recession is the deepest since the 1930s (for which there are no government employment series to compare with the current event). But if the stock market started its recovery in 1974 eight months prior to employment recovery in 1975, it is reasonable to expect an even longer lag in this recovery, perhaps a year.
By March 2010, we should see employment levels improving and unemployment rates declining. Any recovery between now and then is a bonus. There should be no expectation that we see increasing employment rates between now and year end.
The source of my data is the FRED data bases maintained by the St. Louis Federal Reserve. Check it out here for more info.
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Categories: Economics, Financial Crisis
I’ve read that the government started to find ways and even implemented these ways in order to decrease the unemployment rate right now. Though there haven’t said any assurance when this crisis will end, at least they know that this will be the start of a continuous decrease in unemployment rate.
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And the government, along with businesses and citizens, better figure out this unemployment thing fast. There’s no way that the economy or the stock market could stay positive with this high level of unemployment.
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