Measuring the health of the economy through jobs numbers

The worse than expected June jobs numbers are out. You can find commentary all over the web and the blogosphere on how we should judge these numbers. The most interesting analysis I've read though as come from Harvard Economist Jeff Frankels,

There is no lying in US government statistics. But there are always commentators who will use the numbers to make whatever point they want. One should learn enough to be able to interpret the numbers for oneself. That is the only way to prevent being misled.

Of the many numbers contained in the BLS reports, I view three as especially important.

The most salient figure politically is the unemployment rate...

The second important number in the labor market reports is employment...

...the third indicator is my personal favorite for gauging the business cycle in real time: the rate of change of total hours worked in the economy. Total hours worked is equal to the total number of workers employed, multiplied by the length of the workweek for the average worker. The length of the workweek tends to respond at turning points faster than does the number of jobs. When demand is slowing, firms tend to cut back on overtime, and then switch to part-time workers or in some cases cut workers back to partial workweeks, before they lay them off. The phenomenon is called “labor hoarding.” Conversely, when demand beings to rise, firms tend to increase the workweek, before they hire new workers. (To take two historical examples, the “change in total hours worked” improved in both April 1991 and November 2001, which on other grounds were eventually declared to mark the ends of their respective recessions.)

The workweek reached a historically short level in June: 33.0 hours. Not a good sign. As one consequence, total hours worked fell 0.8% that month, continuing the same rapid deterioration we have seen since last September, the month when Lehman Brothers failed and the recession worsened sharply.

The bottom line for the economy: despite signs in other areas that the recession is leveling out – most importantly, production — the labor market indicators in themselves are not yet signaling a turning point.

Emphasis mine.

Frankels' analysis gets us to the same place as the other numbers but I think he gets us there in a way that is far more precise than the other more commonly cited measurements. That precision should, as Frankels notes, lead to a more accurate and real time measurement of the job situation as we slog through this recession.

At the very least it's a measurement that will make you look smart when you cite it at your Independence Day barbecue.