Aggregate Cost Stickiness in GAAP Financial Statements and Future Unemployment Rate

We examine whether aggregate cost stickiness observed in recent corporate filings predicts future macrolevel unemployment rate changes. We document that a one-standard-deviation-higher cost stickiness in recent quarters is followed by a 0.23-percentage-point-lower unemployment rate in the following quarter. The effects are more pronounced during more severe recessionary periods. Out-of-sample tests show that cost stickiness has incremental predictive power over a comprehensive array of known explanators for unemployment rate. In addition, a model incorporating cost stickiness outperforms professional macroforecasters, particularly those employed in nonfinancial industries, suggesting that professional forecasters do not fully incorporate the information contained in the cost stickiness measure obtainable from publicly available corporate filings. In cross-sectional analyses, we find stronger relationships between future changes in unemployment rate and cost stickiness derived using firms with stronger governance, with lower asset intensity, with higher labor intensity, and in more concentrated industries.