Unemployment Vs. Real GDP


The inverted Unemployment Rate is correlated to Real GDP and is also known as Okun's Law named after Arthur Melvin Okun.



Zero Hedge featured Okun's Law in this article.










Red curve: inverted yoy% change in unemployment rate


Blue curve: yoy% change in real GDP



Never in history has the unemployment rate been so artificially low (red graph artificially high) as today. The red curve has never been higher than the blue curve, which implies that the unemployment rate is much higher than officially reported.



We already know what the cause is: a lot of discouraged and part-time workers.



Moreover, the chart suggests that Real GDP (blue chart) is a leading indicator for the unemployment rate (inverted red chart).



As a final note, notice that we are talking about real GDP, which is inflation adjusted. This means that inflation negatively impacts real GDP and therefore inflation will in turn create higher unemployment rates at a constant GDP rate.

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