It's not that the theory doesn't make sense. At first
blush it makes perfect sense. But when you look at the
numbers, the simple-as-pie thesis starts to break down.
I'm referring to the theory about the worrisome
unemployment rate in the U.S. The theory goes something like
this: The unemployment rate -- most recently measured at 9.7%
-- remains doggedly high. That means that folks are out of
work and can't shell out for consumer goods like
Apple (Nasdaq: AAPL) iPods,
Starbucks (Nasdaq: SBUX) lattes, and
Activision Blizzard (Nasdaq: ATVI) video
games.
That, in turn, means that suppliers of intermediate goods
like
Intel (Nasdaq: INTC) and
Qualcomm (Nasdaq: QCOM) see demand fall.
Businesses become reluctant to spend, eschewing a big tech
upgrade with
Oracle (Nasdaq: ORCL) or canning that new
headquarters that would have benefitted materials producers
like
Alcoa (NYSE: AA). Companies get worried, lay
off workers to "optimize" operations, and
the cycle deepens.
Hello reality, good to see you
Looking at history as a guide, though, I found that the
unemployment rate -- though easy enough to track and
understand -- isn't really a good measure of what to expect
from the economy.
I went ahead and borrowed some data from the U.S. Bureau
of Labor Statistics to illustrate the relationship. Thanks to
the great people at the National Bureau of Economic Research,
I was able to pinpoint the quarter that the U.S. pulled out
of recession in every business cycle since 1949 and see what
the unemployment rate looked like as the economy
bottomed.
Quarter / Year
Unemployment Rate Previous Quarter
Unemployment Rate at Bottom
Q4 1949
6.6%
6.6%
Q2 1954
5.7%
5.6%
Q2 1958
6.7%
7.3%
Q1 1961
6.6%
6.9%
Q4 1970
5.4%
6.1%
Q1 1975
7.2%
8.6%
Q3 1980
7.6%
7.5%
Q4 1982 Continued... |