Uncertainty and Unemployment

http://www.economist.com/blogs/graphicdetail/2013/01/focus-3

This article begins by pointing out that economic uncertainty has a negative impact on consumer demand as well as the unemployment rate. It goes on to explain two uncertainty indices used to measure uncertainty in the economy. The first is the economic policy uncertainty index, which is based on statements made in the media as well as the rate of disagreement between economics forecasters. The second is the hiring-uncertainty index, which relies on feedback from different employers regarding their hiring intentions. As stated in the article and illustrated on the graph, these two indices have been highly correlated with one another and with the unemployment rate until recently. This presents the question: as these two indices diverge, which one, if either, will the unemployment rate follow? If I had to choose between the two, I would say that the unemployment rate will most closely follow the hiring-uncertainty index. This is because unemployment rates are directly related to hiring patterns- as more firms hire more workers, more people are employed and the unemployment rate drops. However, because employers tend to hire less workers in times of uncertainty and more when the economy is stable, I feel that the hiring uncertainty index will rely heavily on the economic policy uncertainty index. If this is the case, I believe that the two indices should eventually fall back into a rhythm, and the unemployment rate will once again become consistent with both.