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Remember those bears growling through the spring and summer about rising unemployment numbers? September’s better-than-forecast jobs data finally silenced them. But any more bad reports in the months ahead, and they’ll be back.
They’ll also be wrong. Again and again. Season after season.
That’s because not only unemployment but also job growth are, very simply, always late-lagging indicators. They are useless as recession or stock market predictors – except for the fact that a widespread, wrongheaded fear of them in markets is bullish (Fear of a false factor is always bullish).
It seems so intuitively right that rising unemployment should cause recession. Job loss is often personal. We can all imagine the pain and necessary cutbacks. Since consumer spending is 68% of US GDP, job cuts must ripple economywide, causing recession. Right?
Not at all. History documents consumer spending as stunningly stable — even through truly wretched recessions. During 2007 – 2009’s deep downturn, “Personal Consumption Expenditures” — the broadest measure — fell just 4.1% from peak to trough. During 2001’s recession, they generally rose (outside September’s 9/11-related, month-to-month dip of 1.6%).
The recently unemployed may skimp on luxuries. But the vast majority of consumer spending is essential, not discretionary. Shoppers dig deep to keep buying groceries, mostly pay their rent (or mortgage) and utilities. Spending rarely booms or busts big, whether hiring rises or retreats.
To see this, think like a CEO. When downturns start weighing on sales, execs cut costs. They slash inventory, shrink bonuses, travel expenses, perks, cancel marketing campaigns, kill expansion plans. But cutting headcount? That is a dreaded last resort that CEOs hate. Layoffs cause bad press, disrupt firms’ cultures and workers’ lives. And experienced help is tough and costly to replace when times finally improve.
Likewise, firms never hire when business first improves. They seek sustained sales gains lest they get boomeranged by some false dawn. Legendary “jobless recovery” fretting, common in early economic rebounds, perpetually misunderstands this. Jobs follow growth, never lead it, always.
Examples? While 2007–2009’s recession officially ended in June 2009, unemployment peaked later, at 10% in October. Even then it only fell because discouraged workers stopped seeking work, so weren’t technically counted as unemployed (how it’s calculated). Payrolls didn’t bottom until February 2010.
By the time unemployment peaked, the S&P 500 already was up 55.3%. When payroll growth resumed? 66.8%! Unemployment stayed above 9% through September 2011, yet stocks climbed all along the way.
Similarly, after the March–November 2001 recession, the unemployment rate peaked 17 months later in June 2003. Payrolls didn’t bottom until August. By then, a bull market was roaring – and the recession a distant memory.
Even in 2020’s flash, lockdown-induced economic contraction, stocks bottomed in March, unemployment peaked in April and net hiring restarted in May.
Stocks first. Economy next. Jobs last. Always.
Jobs data tell you where the economy was, not where it’s going. You don’t need me to tell you recent years took us to some bizarre places. Yes, I mean COVID. Lockdowns wreaked economic havoc — and on metrics used to gauge it. Including employment.
Through September, over half of 2024’s 0.4 percentage point unemployment rate uptick stems from a growing workforce — not layoffs — heavily from those returning who left the labor force amid emotionally depressed COVID chaos. Hiring is up, but the workforce is up more. Ditto for rising unemployment across much of Europe, Canada and beyond.
Yes, hiring slowed since 2021 and 2022’s rapid rise – to normal, pre-pandemic rates. Consider 2009 – 2020. After payrolls bottomed in mid-2010, year-over-year growth bounced between 1.2% and 2.3%. September’s 1.5% versus a year earlier is right about there.
We struggle to recognize the post-COVID return of job data normalcy. But it is nothing to fear or cheer. Jobs data just bring up the rear.
Ken Fisher is the founder and executive chairman of Fisher Investments, a four-time New York Times bestselling author, and regular columnist in 21 countries globally.
