When Will We See More Jobs?
The recent statistics show unemployment went into double digits rising to 10.2% nationally, more in some local areas. What’s more concerning is that this is a continuation of a steady trend upward with what looks to be no end in sight. Inquiring minds want to know, if we are out of the recession, why aren’t we creating new jobs? And when will we this turn around? To answer those question consider these two things:
1. Unemployment is a lagging indicator. If we think about how companies operate, it’s easy to see why unemployment lags the economic recovery. No firm will hire people before they are needed. So putting first things first, we have to have the demand for products and services increase before people get hired. The other way around doesn’t make any sense. So we aren’t creating jobs yet because the economy is still turning around. Jobs follow the growth in the economy, they don’t lead it.
2. Stock market is a leading indicator. Unlike employers, traders in the stock market don’t wait to see if things improve. They are trying to buy low and sell high. So they make their bets when they think the future is going to get better before it already has. We see this in the recent market as stock prices have risen. This is a signal of future growth. Most economists feel that the stock markets reflect the future about six to nine months out.
If we combine the lagging indicator of unemployment with the leading indicator of the stock market, then a reasonable vision of the future would be that unemployment would continue to increase for another few months—maybe into the middle of next year—before leveling off and slowly starting to improve.
No one can predict the future with certainty and these two indicators aren’t a panacea. Also, the situation can change with new information. But right now, this seems to be a reasonable view of what’s going on.
