Do you remember those bears that kept growling about rising unemployment numbers in the spring and summer? Better-than-forecast September jobs data finally silenced them. But even worse reports will come in the coming months and they will come back.
They would also be wrong. Frequently. Season after season.
This is because not only unemployment but also job growth are, very simply, always lagging indicators. They are useless as recession or stock market predictors – except for the fact that widespread, misplaced fear of them in markets is bullish (false factored fear is always bullish).
It seems intuitively correct that rising unemployment should lead to a recession. Job loss is often personal. We can imagine all the pain and cuts required. Since consumer spending accounts for 68% of US GDP, job cuts should lead to a recession in the economy. Correct?
no way. History shows consumer spending to be surprisingly stable – even during truly miserable recessions. During the deep recession of 2007–2009, “personal consumption expenditure” – the broadest measure – fell only 4.1% from peak to trough. During the 2001 recession, they generally Rose (Outside of September’s 9/11-related monthly decline of 1.6%).
Recently unemployed people may skimp on luxuries. But the vast majority of consumer spending is essential, not discretionary. Shoppers work very hard to afford groceries, mostly to pay their rent (or mortgage) and utilities. Spending rarely booms or falls, whether hiring rises or falls.
To see this, think like a CEO. When a recession begins to affect sales, executives cut costs. They cut inventory, reduce bonuses, travel expenses, perks, cancel marketing campaigns, scrap expansion plans. But cutting the workforce? This is a terrible last resort that CEOs hate. Layoffs cause bad press, disrupt firms’ cultures and workers’ lives. And ultimately it is difficult and expensive to replace experienced help as time improves.
Similarly, companies never hire when business first improves. They want consistent sales profits, lest they be hit by a false dawn. The myth of the mythical “jobless recovery” that is common in early economic reforms consistently misunderstands this. Jobs follow growth, not always lead it.
Example? While the 2007–2009 recession officially ended in June 2009, unemployment peaked at 10% later in October. Yet it fell only because discouraged workers stopped looking for work, so technically they weren’t counted as unemployed (that’s how it’s calculated). Salary payments did not reduce until February 2010.
By the time unemployment peaked, the S&P 500 was already up 55.3%. When did payroll growth resume? 66.8%! By September 2011, unemployment remained above 9%, yet stocks continued climbing all the way.
Similarly, after the recession of March–November 2001, the unemployment rate peaked 17 months later in June 2003. The salary was not reduced till August. By then, the bull market was taking hold – and the recession was a distant memory.
Even in the flash of 2020, the lockdown-induced economic contraction, stocks bottomed in March, unemployment peaked in April and net hiring resumed in May.
Stock first. Economy ahead. Jobs last. Always.
Jobs data tell you where the economy was, not where it is going. We don’t need us to tell you that we’ve been to some strange places in recent years. Yes, I mean Covid. The lockdown wreaked economic havoc – and on the metrics used to measure it. Which also includes employment.
As of September, more than half of the 0.4 percentage point increase in the unemployment rate in 2024 stems from the growing workforce – No Layoffs – The return of massive numbers of people who left the labor force amid the emotionally depressing Covid chaos. Hiring has increased, but so has the workforce. The same is true for rising unemployment in much of Europe, Canada and beyond.
Yes, hiring has slowed since the rapid growth of 2021 and 2022 — back to normal, pre-pandemic rates. Consider 2009 – 2020. After payrolls bottomed in the mid-2010s, year-over-year growth rose between 1.2% and 2.3%. September’s 1.5% compared to a year ago is right around the corner.
We are struggling to recognize the return to normalcy in job data post Covid. But there is nothing to be afraid or happy about. The jobs data simply lags behind.
Ken Fisher is the Founder and Executive Chairman of Fisher Investments, a four-time New York Times bestselling author, and a regular columnist in 21 countries globally.
