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Investing Specialists

Employment Data Fails the Test as an Indicator

A number of indicators are more helpful than employment, and they're telling us a bottom is imminent.

Friday, the market-watchers continued a pattern of obsessing over the employment numbers with all the accompanying hand-wringing over how the market might respond. Funny thing is, this pattern of analysis is backward. Generally (though not always), stock market improvement leads the economy, which in turn leads most employment metrics.

There is one employment data point, the peak of initial unemployment claims, that does serve as a modestly useful leading economic indicator. However, both the trough in total employment and the unemployment rate are badly lagging economic indicators of both the economy and the stock market.

Looking at the last six recessions (1969-2001), we analyzed when the economy bottomed (as measured by the "official" National Bureau of Economic Research recession trough) and compared that trough to when various metrics hit their worst levels. We constructed the table below to show the results: