Stock prices are generally considered to be „leading indicators“ of the economy. They are mainly based on expectations regarding the further development of corporate profits, i.e. they are directed towards the future. And since corporate profits are usually closely correlated with the economic ups and downs, stock prices should also provide a good forecast for the further course of the economy.
By contrast, the labour market is considered a typical „lagging indicator“ for the economy. This is because companies usually need time to adjust their headcount to economic developments. New hires are preceded by a search and selection process, and layoffs due to a lack of orders or business closures also require a lead time.
There is currently great optimism in the stock market, despite the severe corona crisis. Meanwhile, the labour market – at least in Europe – has so far reacted only very cautiously to the crisis. Does this mean that the crisis has already been overcome and that everything was not so bad? Or is the big end still to come?
Unfortunately, the meaningfulness of current economic indicators is currently severely limited. Uncertainty about the further development is still very high, but is being suppressed on the stock market thanks to the massive liquidity injection by the central banks. The unemployment statistics also reveal their methodological weaknesses in the current crisis and do not paint a reliable picture of the situation on the labour market. For these reasons, too, a reliable assessment of the economic damage caused by the crisis is not yet possible.