Unemployment As A Coincident Indicator

Reader Michael points out an interesting observation on the lagging versus coincident nature of unemployment as an indicator of economic health. His thoughts below:

I am skeptical of a lot of the "good news", and note that a recent mini-bounce in the Conference Board Leading Indicator was only due to the expansion in the money supply; all other variables were negative. I also think Rosenberg is on the right track in terms of higher than expected savings rates, and the over-extrapolation of recent housing and production data.

But as for employment, we need to acknowledge the historical reality that prior market bottoms have coincided with terrible (and worsening) employment conditions. This is true even in the very bad recessions of 1957-58, and 1973-75. In the charts below, the orange line shows unemployment, and the blue line the S&P 500; the blue line often troughs while the orange line keeps getting worse. This is the basis for the whole "employment as a lagging indicator" argument. Maybe it's different this time and employment is a now coincident indicator, but that's the case, adherents to such a view should explain why.