IMPRECISE INDICATOR

Far from being a leading or coincident economic indicator, the unemployment rate is a lagging economic indicator. Here’s why. In a downturn, firms first stop posting jobs and then stop hiring. If things worsen, employers will reduce headcount through attrition and then, if possible, furlough workers. Only then will layoffs commence. Thus, by the time the unemployment rate starts significantly rising, as has recently, conditions have already meaningfully deteriorated.