Is Unemployment Any Guide to Future Growth?

BY busadmin  July 23, 2009 at 10:25 AM EST

unemployed worker; via Getty Images

Question: How reliable is unemployment data as a guide to future economic growth?

Paul Solman: Not much at all, I wouldn’t think. For one thing, employment tends to FOLLOW growth — for the obvious reason that as spending and investment pick up, businesses tend to take on more employees. By a similar logic, a rise in UNemployment suggests an economic slowdown in the PAST: businesses laying off employees in response to the lack of spending and investing, ie, NON-growth.

Furthermore, consider this: Growth (increased output) in the United States may come increasingly from a relatively finite or even decreasing class of U.S. jobs: fully robotized auto factories, say, or do-it-yourself airlines where most of the employees are taking your reservations (or complaints) in Punjab.

In that case, INCREASED unemployment could conceivably accompany increased growth. It’s a fear that’s proved unfounded in the past, as with the “automation scare” of the 1960s. But history does NOT repeat itself, save to the extent it consistently reverts to both tragedy and farce. And, let’s not forget, attempts to self-improvement.

In any case, if unemployment rises again tomorrow, it doesn’t mean you should dismiss the “green shoots” (or “bamboo shoots,” as economist Ed Yardeni calls them, since so many have their origins in Asian growth). On the other hand, more unemployment means more Americans with less to spend, who also represent more of a tax burden to the extent they draw on public services. Neither of those trends augur well for economic growth.