adjusted unemployment

The seasonally adjusted rate of unemployment for January may not be an accurate gauge of changes in the near-future aggregate personal consumption in US because it

1- (as opposed to alternative measures of labor underutilization) does not count as unemployed the people who work part-time because of unavailability of full-time jobs, and completely ignores the people who (out of frustration) give up looking for work. Nevertheless economists still prefer to use the U-3 figures because of sample size considerations. (The reliability of an econometric analysis varies positively with sample size. Among the different measures of unemployment rate, U-3 has the longest running time series.)

Note that the departure of unemployed people from work force actually decreases the U3 unemployment rate. For example, assume that the size of the work force is 100 million people and the unemployment rate is 5%. If 20% of the unemployed leaves work force, then the unemployment rate becomes 4% = [100,000,000*5%*(100%-20%)]/[100,000,000*(1-(5%*20%))].

2- understates the real January unemployment rate due to seasonal correction.

3- omits the role of expectations. While spending money today, people worry about not only the current unemployment rate but also the future employment prospects.

4- does not reflect wage cuts and decreases in working hours.

5- does not contain any information related to non-wage income or marginal propensity to save.

Hence it is not surprising that there is a not-so-clear (but discernible) relationship between the year-on-year monthly percentage changes in seasonally adjusted rate of unemployment and year-on-year monthly percentage changes in personal consumption expenditure. (It is hard to tell where the causation starts but there is certainly a positive feedback mechanism between the two variables.)