The unemployment rate is a lagging indicator, rising after the economy starts to pick up and falling when it starts to soften. Non-farm payrolls are a coincident indicator. They are one of four components that comprise the Index of Coincident Indicators, compiled monthly by the Conference Board. It's the components of the coincident index that the National Bureau of Economic Research's business cycle dating committee uses to date the economy's peaks and troughs. If you think about employment intuitively, however, there is nothing leading or even coincident about it.
Employers respond to changes in demand by increasing or decreasing production.
They do this by adjusting worker hours, the first line of defense, or cutting the headcount, which is what is happening now. But there is nothing about employment per se that sheds any light on where the economy is going. While it's true that declines in employment can snowball into cutbacks in consumer spending, employment is the tail, not the dog. Today's jobs report solidified expectations that the Federal Reserve will lower the federal funds rate by another 50 basis points when policy makers meet May 15. That would bring the cumulative rate cuts since Jan. 3 to 250 basis points, the most aggressive easing since the summer of 1982, when the economy was suffering through the second recession in as many years.