Unemployment rate was not low to start with. We enjoyed declining unemployment from 1980s till 2000s with booming housing market, low rates and financial innovation until 2006 when it started creeping up silently. (Leading indidcator for once?)
The 2009 unemployment rose as much as 1.5x - 2x more than past averages. Notice that market has a big move up within 2-3 years after each peak unemployment number? Hmmm
Do look at the other chart below, market runs inverse to unemployment but 2009 was a anomaly. Either we have too many stock pickers getting better or more people should wake up and get back to work.
3 comments:
isn't unemployment supposed to be a lagging indicator?
in that case, can we expect the anomaly to disappear as unemployment and S&P converge(unemployment declines, S&P trends up)over time?
Hi there,
Unemployment traditionally was a lagging indicator and I brought up this chart to provoke questions.
My thinking is that the markets had too early a rise despite underlying economic fundamentals being weak. Further, it is noted that more people are also leaving their 9-5 jobs to pursue other interests that may not be recorded as employment, for example charity work, business venture etc.
One must note that this 2 items are not causal linearly and there are more factors involved which controls the relationship between S&P and unemployment. To predict the relationship forward based on past data will be mis-assumption on my part.
All I can tell is as what I wrote, unemployment is either very abnormally high or markets are recovering faster than it ought to be. (over confidence and optimism coupled with institutions having the need to "get back in action" after missing the March 09 rally.
Unemployment is a real problem.
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