Readers hammered me yesterday for failing to observe that jobs are typically a lagging indicator in your normal economic recovery. And that is true. In the normal case, GDP growth precedes a return to health for the labor market.
But is this a normal case? If you are in the camp that says a hefty percentage of third-quarter growth can be directly attributed to government spending, then it is reasonable to wonder what happens when that spending begins to peter out. A double-dip recession that hits in 2010 is all too possible, with enormous implications for unemployment and the political future of the U.S.
With that in mind, the economic indicator to pay attention to today is the news that consumer spending fell in September by 0.5 percent. That's the first drop in five months and the worst drop since December 2008 -- a point in time when the economy was in free fall. And it is completely predictable and understandable -- consumers are not confident that the U.S. economy is out of the woods. The prospect of a 10 percent top-line unemployment figure released next week is bound to inspire caution.
Personal consumer expenditures -- largely fueled by the government's Cash-for-Clunkers program -- made up a hefty proportion of the third quarter's 3.5 percent GDP growth rate. An estimate of September's figures is included in the GDP report, so in part this decline has already been accounted for. But it will still be the critical indicator to watch as we wobble forward. As high unemployment persists, and government spending declines, the American consumer is going to be under a lot of pressure to boost saving and curtail expenses. In this economy, the normally lagging indicator of unemployment may lag a lot longer than usual.