Why The Unemployment Rate May Not Be A Lagging Indicator
The unemployment rate is considered a lagging indicator. In other words, once the economy revs up, it takes awhile for the unemployment rate to change.
Since the process of determining company employment levels, reviewing applications, interviewing, and hiring people can take weeks, if not months, the unemployment rate lags the rest of the economic indicators.
In our current economic climate, we’re seeing economic indicators that indicate a recovery is on the way. The market has adjusted. Earnings are improving. When this happened in other economic periods, the unemployment rate slowly dropped.
But this economy isn’t like other ones.
Some economists are suggesting that the unemployment rate will not be a lagging indicator. They offer a few reasons.
To begin with, the signs of recovery may be artificially propelled by the stimulus spending and other government efforts to aid the recovery. Businesses, if they’re the beneficiary of stimulus money at all, are not going to make a long-term business decision, like employment levels, based on a short-term money burst.
Another reason the unemployment rate may not improve much is the political environment. With higher taxes in the offing and tighter regulations, employers are more reluctant to hire–even as signs of better times appear.
The employment forecast should reinforce the idea that, ultimately, you must rely on yourself for your financial security–not an organization or a corporation. Creating a plan to make, save, and invest money is needed now, more than ever.
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