Unemployment is not a Fluid Metric

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As much as the media would like you to believe that unemployment is a fluid metric, capable of immediate response to the edicts of our monetary and fiscal policy makers, intuitively we know the opposite is true.

We only need to place ourselves in the situation of the business owner and think about productivity involved in the hiring/firing decision. If you are a business owner, business has to be doing great in order to hire another employee. After all, you are not going to hire someone if most of you current employees are loafing around – and certainly you will not if you think there are worsening economic conditions coming. Certainty is the key – no one wants to hire someone and lay him off four weeks later – or even nine months later.

Just as a certain level of productivity is demanded of employees, combined with a positive outlook is required to hire, the opposite is true with firing. A visionary employer will begin to fire employees if he sees worsening economic decisions. This is ideal, because it allows the newly unemployed an opportunity to integrate into the economy before the downturn. Unfortunately, there are few visionary employers. Most employers begin to fire when things are really poor – no one wants to lay someone off just to find out he needs an another employee four weeks later – or, like with hiring – even nine months later.

And while unemployment is not bad, the trend is the dominant indicator. There are no “dramatic reversals” in unemployment, despite the desires of policymakers. Unemployment is a decision based metric, which really lets you know how private business views the economy going forward.
 
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