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Investing Specialists

Making Up for 2.5 Million Job Losses

The potential upside from these economic factors could dwarf the downside of job losses.

Employment levels are an important factor in determining consumer spending, which, in turn, drives more than 70% of the U.S. gross domestic product. Markets today are as highly fixated on the employment numbers as they were on money supply in the early 1980s and the trade numbers in the mid-1980s.

But we think this laser-beam focus is misplaced.

In general, employment numbers are backward-looking and in many cases are actually lagging indicators of where the economy is going. If you think about it, the lagging nature of employment data makes a lot of intuitive sense. Because firing workers is so painful, managers are often reluctant to make cuts until they have to. As the economy rebounds, employers are often reluctant to rehire employees until they are absolutely sure their business has turned. Therefore it is not surprising that much of the employment data we see is either a lagging or, at best, a coincident indicator.