Tuesday, February 28, 2012

Warning sign of coming downturn

For those who are the least bit interested in these sorts of things, here is a graph of real personal consumption versus payroll employment, both year-over-year.

As you can see, employment lags consumption and the amount of the lag depends on the phase of the cycle.

When consumption peaks, employment peaks about 1 year later.

When consumption begins to pick up after a bottom, employment starts to rise about 6 months later.

If you examine the linked graph, it's for this reason that some of us think that employment has peaked for this cycle and will soon be turning down.

As for the stock market, it is at best a coincident indicator; it will tell you nothing about the real economy until it has already happened.


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