Thursday, April 9, 2009

Employment now leading

Has the unemployment rate turned into a leading indicator?
Some people like the folks are pimco are speculating massive jumps on unemployment are not lagging indicators but rather leading ones because they affect sentiment and keep animal spirits depressed.

This argument makes sense even though you statistically employment lags as the evidence shows over the last decades. That evidence is not important because you cant find much evidence of a stock market collapse of this magnitude over the last decades either or a number of other plunges in economic data, so in these unprecendeted times it could very well make sense to throw some of these backward looking models out of the window. In the end it comes down to 'do you believe your crazy old theories or your lying eyes?', I dont think these eyes are lying, by observation you can tell these massive jumps have to affect sentiment, otherwise you are arguing massive reported economic destruction doesnt affect human behavior which simply not likely. So it looks like a good percentage bet to believe employment might have turned to leading indicator in this credit crisis

This suggests people(like stock bulls) ignoring employment because it lags are in for a big surprise when the very indicators that are slightly better now and which they are now cheerleading might turn back down or stay depressed killing off the 2nd half recovery they are antecipating

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