More like misleading indicators
Ben Bernanke says the recession is “very likely over.” What a relief.
Yet how come we still feel so depressed (or at least recessed) about the economy? How come my personal economy, and probably yours, still feels as if it has a miserable, sniffling, sneezing case of the Recession Swine Flu?
And one other thing: How come the employment rate is at 9.7 percent and rising? How come unemployment shows every intention of busting into double figures and throwing you, and everybody in your family, out of work?
Well, in my capacity as the Recession Answer Man, I am pleased to enlighten you. The answer is: Unemployment is a “lagging indicator.”
Economic data is divided into “leading indicators” and “lagging indicators.” A leading indicator starts to improve before a recession ends. It’s a bright, happy indicator that shows up to the party early, sings a happy tune and assures us all that we’re going to have a smashing good time by the end of the night. A lagging indicator dawdles, sulks, refuses to cooperate and finally shows up to the party, holding a noisemaker, after everyone else has gone home.
So think of a high unemployment rate as the surly teenager of the economy, loitering around the house for years.
The stock market is, to its credit, a leading indicator. That’s because people place bets in the stock market based on what they think will happen in the future. That’s why the stock market was slowly recovering even before Bernanke declared that the recession was likely over. (On the other hand, the stock market usually goes to hell before a recession starts, but that’s the less-cheery side of the leading indicator story.)
Here’s a list of some other leading indicators:
•New orders for stuff (Crock-Pots, George Foreman grills, tractors, etc.).
•New building permits.
•The supply of money. Not your money – that’s a permanently lagging indicator, at least at my house – but the actual amount of money in circulation.
•New unemployment claims. Not the same as the unemployment rate.
Meanwhile, here are a few of the laggards:
•The profitability of your company.
•The size of your salary.
•Your ability to pay off your credit cards.
•And, finally, the unemployment rate, or, to be more precise, how long people remain unemployed.
What? How can unemployment be both a leader and a laggard? I think it works like this: One of the first things companies do when things go sour is to lay off people; one of the last things they do when things turn brighter is hire people back.
I mentioned that “consumer sentiment” is supposedly a leading indicator, but I’ve come to the conclusion that I, personally, feel like a lagging indicator.
My consumer sentiment is still highly recessionary, in sympathy with some of the other laggards: the unemployment rate, salaries and profits.
I will grant this: Bernanke’s assessment did cheer me up. But what would really cheer me up would be employment roaring back to life.
I’m sure it will someday. But just like a laggard, it will take its sweet time. I just hope it doesn’t wait until right before the next recession cranks up.
Reach Jim Kershner at email@example.com or (509) 459-5493.