Unemployment as a Lagging Economic Indicator

"I've lost my job! When will things get better?" If this applies to you, I am afraid that I have to say that things will not get better in the employment market for a very long time. That means 18 to 36 months at least. How could I say this, when I've been so optimistic regarding the long term potential of the stock market in the related article above?

This is because "jobs" are a lagging indicator in the economy, whereas stocks are a leading indicator. Having been in business myself, counseled the captains of business and industry, as their attorney, and observed numerous business cycles over the years, I know that the thought of hiring new people arrives only during periods of existing prosperity and expansion. For one thing, for most businesses, “payroll” is the biggest line item in the expense section of one’s financial statements.

Often the most profitable period in the business cycle is when one is just a little shorthanded. Businesses love to relish that state of affairs for as long as possible. It’s only when one starts having to turn down desirable, prospective customers, that the pressure builds to a sufficient level that hiring decisions are made. So, the recovery must come first, then the employment. It’s possible to see an economic recovery, like a ship, on the horizon long before it arrives. That’s when the stock market rises.

It’s only when the ship gets stuck in port for want of a crew that adding fresh hands becomes a compelling necessity. I don’t see that happening for quite some time!

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