A Striking Scatterplot

This graphic is from John Taylor, who plots it using quarterly seasonally adjusted data from 1990Q1 to 2010Q3.  Investment here is fixed investment. 

Of course, causality goes in both directions: Strong investment demand leads to lower unemployment, and a stronger economy, reflected in lower unemployment, encourages investment spending.   As a result, the interpretation of this scatterplot can be debated.  But there is no doubt that the strength of the correlation is impressive.

Updates: Justin Wolfers takes John Taylor to task. John responds.